UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(mark one)


þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August ~~3, 2013~~.2, 2014.


¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-35600

Five Below, Inc.

(Exact name of Registrant as Specified in its Charter)



Pennsylvania		75-3000378
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1818 Market Street, Suite ~~1900~~2000
Philadelphia, PA		19103
(Address of Principal Executive Offices)		(Zip Code)

(215) 546-7909

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of September ~~9, 2013~~10, 2014 was ~~54,040,270.~~54,303,812

~~FIVE BELOW, INC.~~

~~Index~~



INDEX
		~~Page~~
PART I –- FINANCIAL INFORMATION		1 Page
Item 1.	Consolidated Financial Statements (unaudited)	13
	Unaudited Consolidated Balance Sheets as of August 2, 2014, February 1, 2014 and August 3, 2013 ~~February 2, 2013, and July 28, 2012~~	13
	Unaudited Consolidated Statements of Operations for the Thirteen and Twenty-Six Weeks Ended August 2, 2014 and August 3, 2013 ~~and July 28, 2012~~	24
	Unaudited Consolidated Statement of ~~Shareholders’~~Shareholders' Equity for the Twenty-Six Weeks Ended August ~~3, 2013~~2, 2014	35
	Unaudited Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended August 2, 2014 and August 3, 2013 ~~and July 28, 2012~~	46
	Notes to Unaudited Consolidated Financial Statements	57
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1413
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2522
Item 4.	Controls and Procedures	2623

PART II –- OTHER INFORMATION		27
Item 1.	Legal Proceedings	2723
Item 1A.	Risk Factors	2724
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2724
Item 3.	Defaults Upon Senior Securities	2824
Item 4.	Mine Safety Disclosures	2824
Item 5.	Other Information	2824
Item 6.	Exhibits	2925

PART I—I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

FIVE BELOW, INC.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)


	August 3, 2013			February 2, 2013			July 28, 2012			August 2, 2014			February 1, 2014			August 3, 2013
Assets
Current assets:
Cash and cash equivalents	$	21,088		$	56,081		$	17,676		$	25,550		$	50,184		$	21,088
Inventories	83,470			60,831			63,631			106,749			89,377			83,470
Prepaid income taxes	837			36			10,577			2,247			1,497			837
Deferred income taxes	1,807			1,295			—			5,145			4,586			1,807
Prepaid expenses and other current assets	14,182			11,433			12,155			19,913			15,255			14,182
Total current assets	121,384			129,676			104,039			159,604			160,899			121,384
Property and equipment, net of accumulated depreciation and amortization of $37,717, $31,530, and $27,046 respectively	65,555			59,040			49,039
Property and equipment, net of accumulated depreciation and amortization of $51,685, $43,997, and $37,717, respectively										82,902			70,381			65,555
Deferred income taxes										1,281			232			—
Other assets	601			944			1,116			293			542			601
										$	244,080		$	232,054		$	187,540
	$	187,540		$	189,660		$	154,194
Liabilities and Shareholders’ Equity
Current liabilities:
Line of credit	$	—		$	—		$	—		$	—		$	—		$	—
Current portion of notes payable	—			15,000			1,000
Current portion of note payable										—			19,500			—
Accounts payable	32,174			27,952			28,064			46,529			34,013			32,174
Income taxes payable	1,910			7,083			—			1,748			6,007			1,910
Accrued salaries and wages	2,044			4,204			2,830			3,364			2,672			2,044
Other accrued expenses	14,402			14,545			11,496			19,279			17,550			14,402
Deferred income taxes	—			—			1,045
Total current liabilities	50,530			68,784			44,435			70,920			79,742			50,530
Notes payable	19,500			19,500			33,750
Note payable										—			—			19,500
Deferred rent and other	33,894			29,082			26,294			40,442			35,439			33,894
Deferred income taxes	1,645			1,550			2,949			—			—			1,645
Total liabilities	105,569			118,916			107,428			111,362			115,181			105,569
Commitments and contingencies (note 4)
Shareholders’ equity:
Common stock, $0.01 par value. Authorized 120,000,000 shares; issued and outstanding 54,039,838, 53,980,797, and 53,972,006 shares, respectively.	540			540			540
Common stock, $0.01 par value. Authorized 120,000,000 shares; issued and outstanding 54,300,398, 54,190,724 and 54,039,838 shares, respectively.										543			542			540
Additional paid-in capital	276,225			270,637			266,594			289,066			284,622			276,225
Accumulated deficit	(194,794		)	(200,433		)	(220,368		)	(156,891		)	(168,291		)	(194,794		)
Total shareholders’ equity	81,971			70,744			46,766			132,718			116,873			81,971
	$	187,540		$	189,660		$	154,194		$	244,080		$	232,054		$	187,540

See accompanying notes to consolidated financial statements.

FIVE BELOW, INC.

Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)


	Thirteen Weeks Ended						Twenty-Six Weeks Ended						Thirteen Weeks Ended					Twenty-Six Weeks Ended
	August 3, 2013			July 28, 2012			August 3, 2013			July 28, 2012			August 2, 2014		August 3, 2013			August 2, 2014			August 3, 2013
Net sales	$	117,087		$	86,820		$	212,691		$	158,649		$	152,479	$	117,087		$	278,483		$	212,691
Cost of goods sold	77,687			58,073			143,078			106,882			101,574		77,687			188,643			143,078
Gross profit	39,400			28,747			69,613			51,767			50,905		39,400			89,840			69,613
Selling, general and administrative expenses	32,214			24,012			59,238			48,997			37,570		32,214			71,243			59,238
Operating income	7,186			4,735			10,375			2,770			13,335		7,186			18,597			10,375
Interest expense, net	391			1,316			902			1,279			10		391			82			902
Loss on debt extinguishment	266			1,587			266			1,587			—		266			244			266
Other income	—			(258		)	—			(258		)
Income before income taxes	6,529			2,090			9,207			162			13,325		6,529			18,271			9,207
Income tax expense	2,460			843			3,568			72			5,005		2,460			6,871			3,568
Net income	4,069			1,247			5,639			90			8,320		4,069			11,400			5,639
Dividend paid to preferred and unvested restricted shareholders	—			(65,403		)	—			(65,403		)
Net income attributable to participating securities	(52		)	—			(91		)	—			—		(52		)	(38		)	(91		)
Net income (loss) attributable to common shareholders	$	4,017		$	(64,156	)	$	5,548		$	(65,313	)
Basic income (loss) per common share	$	0.08		$	(3.41	)	$	0.10		$	(3.71	)
Diluted income (loss) per common share	$	0.07		$	(3.41	)	$	0.10		$	(3.71	)
Dividends declared and paid per common share	$	—		$	2.02		$	—		$	2.02
Net income attributable to common shareholders													$	8,320	$	4,017		$	11,362		$	5,548
Basic income per common share													$	0.15	$	0.08		$	0.21		$	0.10
Diluted income per common share													$	0.15	$	0.07		$	0.21		$	0.10
Weighted average shares outstanding:
Basic shares	53,334,551			18,803,979			53,138,198			17,627,376			54,280,336		53,334,551			54,072,660			53,138,198
Diluted shares	53,804,539			18,803,979			53,601,459			17,627,376			54,669,600		53,804,539			54,481,540			53,601,459

See accompanying notes to consolidated financial statements.

FIVE BELOW, INC.

Consolidated Statement of Shareholders’ Equity

(Unaudited)

(in thousands, except share data)

Shareholders’ Equity
Common stock
Additional
paid-in capital
Accumulated deficit Total shareholders’ equity
Shares Amount
Balance, February 2, 2013 53,980,797
$ 540
$ 270,637
$ (200,433 ) $ 70,744
Stock-based compensation expense 8,419
—
4,588
—
4,588
Exercise of options to purchase common stock 48,875
—
209
—
209
Vesting of restricted shares related to stock option exercises —
—
120
—
120
Repurchase of unvested restricted shares related to stock option exercises (259 ) —
—
—
—
Excess tax benefit related to exercises of stock options —
—
590
—
590
Issuance of common stock to employees under employee stock purchase plan 2,006
—
81
—
81
Net income —
—
—
5,639
5,639
Balance, August 3, 2013 54,039,838
$ 540
$ 276,225
$ (194,794 ) $ 81,971



	Shareholders’ Equity
	Common stock				Additional paid-in capital		Accumulated deficit			Total shareholders’ equity
	Common stock
	Shares		Amount
Balance, February 1, 2014	54,190,724		$	542	$	284,622	$	(168,291	)	$	116,873
Stock-based compensation expense	2,123		—		2,436		—			2,436
Exercise of options to purchase common stock	105,306		1		706		—			707
Vesting of restricted shares	—		—		61		—			61
Repurchase of unvested restricted shares related to stock option exercises	(87	)	—		—		—			—
Excess tax benefit related to exercises of stock options	—		—		1,136		—			1,136
Issuance of common stock to employees under employee stock purchase plan	2,332				105					105
Net income	—		—		—		11,400			11,400
Balance, August 2, 2014	54,300,398		$	543	$	289,066	$	(156,891	)	$	132,718

See accompanying notes to consolidated financial statements.

FIVE BELOW, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Twenty-Six Weeks Ended						Twenty-Six Weeks Ended
	August 3, 2013			July 28, 2012			August 2, 2014			August 3, 2013
Operating activities:
Net income	$	5,639		$	90		$	11,400		$	5,639
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	6,187			4,342			8,042			6,187
Gain on conversion of note payable	—			(200		)
Loss on disposal of software, property, and equipment	384			—
Loss on debt extinguishment	266			1,587			244			266
Loss on disposal of property and equipment							28			384
Amortization of deferred financing costs	130			305			12			130
Warrant expense related to professional service providers for services rendered	—			43
Stock-based compensation expense	4,825			8,241			2,441			4,825
Deferred income tax (benefit) expense	(417		)	7,551
Other	—			(71		)
Deferred income taxes							(1,608		)	(417		)
Changes in operating assets and liabilities:
Prepaid income taxes	(801		)	(10,577		)	(750		)	(801		)
Inventories	(22,639		)	(24,841		)	(17,372		)	(22,639		)
Prepaid expenses and other assets	(2,764		)	(4,884		)	(4,665		)	(2,764		)
Accounts payable	3,426			4,717			11,836			3,426
Income taxes payable	(5,173		)	(9,139		)	(4,259		)	(5,173		)
Accrued salaries and wages	(2,160		)	(6,424		)	692			(2,160		)
Deferred rent	5,803			6,228			5,025			5,803
Other accrued expenses	1,604			2,460			1,553			1,604
Net cash used in operating activities	(5,690		)	(20,572		)
Net cash provided by (used in) operating activities							12,619			(5,690		)
Investing activities:
Capital expenditures	(15,140		)	(11,603		)	(19,700		)	(15,140		)
Net cash used in investing activities	(15,140		)	(11,603		)	(19,700		)	(15,140		)
Financing activities:
Borrowing under Term Loan Facility	—			100,000
Repayment of Term Loan Facility	(15,000		)	(65,250		)
Repayment of note payable under Term Loan Facility							(19,500		)	(15,000		)
Cash paid for debt financing costs	(40		)	(2,738		)	—			(40		)
Repayment of note payable	—			(50		)
Dividend paid to shareholders	—			(99,451		)
Net proceeds from issuance of common stock	81			74,308			105			81
Proceeds from exercise of warrants and stock options to purchase common stock	209			201
Proceeds from exercise of options to purchase common stock							707			209
Repurchase of unvested restricted shares related to stock option exercises	(3		)	(17		)	(1		)	(3		)
Excess tax benefit related to restricted shares and the exercise of stock options	590			1,555
Net cash (used in) provided by financing activities	(14,163		)	8,558
Excess tax benefit related to exercises of stock options							1,136			590
Net cash used in financing activities							(17,553		)	(14,163		)
Net decrease in cash and cash equivalents	(34,993		)	(23,617		)	(24,634		)	(34,993		)
Cash and cash equivalents at beginning of period	56,081			41,293			50,184			56,081
Cash and cash equivalents at end of period	$	21,088		$	17,676		$	25,550		$	21,088

Supplemental disclosures of cash flow information:
Interest paid							$	97		$	858
Income taxes paid							$	12,393		$	9,367
Non-cash investing activities
(Decrease) increase in accrued purchases of property and equipment							$	(891	)	$	2,054

See accompanying notes to consolidated financial statements.

FIVE BELOW, INC.

Notes to Consolidated Financial Statements

(Unaudited)

~~(1)Summary of Significant Accounting Policies~~

~~(a)Nature of Business~~


(1)	Summary of Significant Accounting Policies


(a)	Nature of Business

Five Below, Inc. (individually and/or collectively with its ~~wholly-owned~~wholly owned subsidiary, ~~referred to as~~ the ~~“Company”~~"Company") is a specialty value retailer offering merchandise targeted at the teen and pre-teen demographic. The Company offers an edited assortment of products, priced at $5 and below. The Company’s edited assortment of products includes select brands and licensed merchandise. The Company believes its merchandise is readily available, and that there are a number of potential vendors that could be utilized, if necessary, under approximately the same terms the Company is currently receiving; thus, it is not dependent on a single vendor or a group of vendors.

The Company is incorporated in the Commonwealth of Pennsylvania and, as of August ~~3, 2013~~2, 2014, operated~~276~~ ~~stores~~ in Pennsylvania, New Jersey, Delaware, Maryland, Virginia, Massachusetts, New Hampshire, West Virginia, North Carolina, New York, Connecticut, Rhode Island, Ohio, Illinois, Indiana, Michigan, Missouri, Georgia, Texas, and ~~Texas,~~Tennessee. As of August 2, 2014 and August 3, 2013, the Company operated 353 stores and 276 stores, respectively, each operating under the name “Five Below.”

On June 12, 2013,, the Company completed an internal business restructuring pursuant to which the Company formed Five Below Merchandising, Inc., a wholly-owned subsidiary (the “Subsidiary”), and transferred to the Subsidiary assets, operations and employees related to the Company's merchandising operations (the “Restructuring”). Following the Restructuring, the Subsidiary purchases and sells to the Company certain goods for sale at the Company's retail locations, and the Company provides to the Subsidiary back office support, office space and other services, in each case, pursuant to agreements between the Company and the Subsidiary. ~~In connection with the Restructuring, on~~ ~~June 12, 2013~~, the Company amended and restated the Loan and Security Agreement (note 3) and certain other ancillary documents to the Company's Revolving Credit Facility (note 3) in order to, among other things, allow the Company to form and capitalize the Subsidiary and make the Subsidiary a party to the Loan and Security Agreement as a guarantor of the Company's obligations thereunder. The Subsidiary also acceded to the credit agreement and certain ancillary documents to the Company's Term Loan Facility (note 3) as a guarantor of the Company's obligations thereunder. For accounting purposes, the Company's consolidated financial statements include the accounts of ~~the Company~~Five Below, Inc. and the Subsidiary. All intercompany transactions and accounts are eliminated in ~~consolidation.~~the consolidation of the Company's and Subsidiary's financial statements.


(b)	Fiscal Year

~~(b)Fiscal Year~~

The Company operates on a 52/53-week fiscal year ending on the Saturday closest to January 31. References to "fiscal year 2014" or "fiscal 2014" refer to the period from February 2, 2014 to January 31, 2015 and consists of a 52-week fiscal year. References to “fiscal year 2013” or “fiscal 2013” refer to the period from February 3, 2013 to February 1, 2014 and consists of a 52-week fiscal year. References to “fiscal year 2012” or “fiscal 2012” refer to the period from January 29, 2012 to February 2, 2013 and ~~consisted~~consists of a 53-week fiscal year. The fiscal quarters ended August 2, 2014 and August 3, 2013 ~~and~~ ~~July 28, 2012~~ refer to the thirteen ~~week periods~~weeks ended as of those dates. The year-to-date periods ended August 2, 2014 and August 3, 2013 ~~and~~ ~~July 28, 2012~~ refer to the twenty-six ~~week periods~~weeks ended as of those dates.

(c)Basis of Presentation

The consolidated balance sheets as of August 2, 2014 and August 3, 2013, ~~and~~ ~~July 28, 2012~~, the consolidated statements of operations for the thirteen and twenty-six weeks ended August 2, 2014 and August 3, 2013, ~~and~~ ~~July 28, 2012~~, the consolidated statement of shareholders’ equity for the twenty-six weeks endedAugust ~~3, 2013~~2, 2014 and the consolidated statements of cash flows for the twenty-six weeks ended August 2, 2014 and August 3, 2013 ~~and~~ ~~July 28, 2012~~ have been prepared by the Company in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim reporting and are unaudited. In the opinion of management, the aforementioned financial statements include all known adjustments (which consist primarily of normal, recurring accruals, estimates and assumptions that impact the financial statements) necessary to present fairly the financial position at the balance sheet dates and the results of operations and cash flows for the periods ended August 2, 2014 and August 3, ~~2013~~ ~~and~~ ~~July 28, 2012~~.2013. The balance sheet as of February ~~2, 2013~~,1, 2014, presented herein, has been derived from the audited balance sheet included in the Company's Annual Report on Form 10-K for fiscal ~~2012~~2013 as filed with the Securities and Exchange Commission on March ~~28, 2013~~26, 2014 and referred to herein as the “Annual Report,” but does not include all disclosures required by U.S. GAAP. These consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended February ~~2, 2013~~1, 2014 and footnotes thereto included in the Annual Report. The consolidated results of operations for the thirteen and twenty-six weeks ended August 2, 2014 and August 3, 2013 ~~and~~ ~~July 28, 2012~~ are not necessarily indicative of the consolidated operating results for the year ending ~~February 1, 2014~~January 31, 2015 or any other period. The Company's business is seasonal and as a result, the Company's net sales fluctuate from quarter to quarter. Net sales are usually highest in the fourth fiscal quarter due to the year-end holiday season.

(d) Use of Estimates

The preparation of the consolidated financial statements requires management of the Company to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, valuation allowances for inventories, income taxes and stock-based compensation expense.

~~(d)~~(e) Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation at the measurement date:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Inputs, other than Level 1, that are either directly or indirectly observable.

Level 3: Unobservable inputs developed using the Company’s estimates and assumptions which reflect those that market participants would use.

The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.

The Company’s financial instruments consist primarily of cash equivalents, accounts payable, and borrowings, if any, under a line of ~~credit and the Term Loan Facility (as defined in note 3).~~credit. The Company believes that: (1) the carrying value of cash equivalents and accounts payable are representative of their respective fair value due to the short-term nature of these instruments; and (2) the carrying value of the borrowings, if any, under the line of credit ~~and Term Loan Facility~~ approximates ~~their~~ fair value because the line of credit’s ~~and Term Loan Facility's~~ interest rates vary with market interest rates. The Company considers the inputs utilized to determine the fair value of any of the borrowings under the ~~Term Loan Facility~~line of credit to be Level 2 inputs. As of August 2, 2014, February 1, 2014, and August 3, 2013,, ~~February 2, 2013, and~~ ~~July 28, 2012~~, the Company had cash equivalents of $4.3 million, $~~5.9 million~~, ~~$35.7~~2.3 million and ~~$11.6~~$3.2 million,, respectively. The Company’s cash equivalents consist of credit card receivables and ~~a money market account for which~~ fair value was determined based on Level 1 inputs.

~~(2)~~(f) ~~Income (Loss) Per Common Share~~Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued an accounting standards update that clarifies the principles for recognizing revenue from contracts with customers. The update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance is effective for the interim and annual periods beginning on or after December 15, 2016. The update allows for a “full retrospective” adoption, meaning the update is applied to all periods presented, or a “modified retrospective” adoption, meaning the update is applied only to the most current period presented in the financial statements. Early adoption is not permitted. The Company is currently evaluating the impact that the update will have on its financial position, results of operations, cash flows and financial statement disclosures.


(2)	Income Per Common Share

Basic income ~~(loss)~~ per common share amounts are calculated using the weighted-average number of common shares outstanding for the period. Diluted income ~~(loss)~~ per common share amounts are calculated using the weighted-average number of common shares outstanding for the period and include the dilutive impact of ~~preferred stock using the if-converted method and~~ exercise of stock options ~~and warrants,~~ as well as assumed lapse of restrictions on restricted stock awards and shares currently available for purchase under the Company's Employee Stock Purchase Plan, ~~which is minor,~~ using the treasury stock method.

The two-class method is used to calculate basic and diluted income ~~(loss)~~ per common share for the applicable periods since certain of the ~~Company’s preferred and~~Company's restricted stock are participating securities under ~~Accounting Standards Codification (“ASC”)~~ASC 260 Earnings per share. The two-class method is an earnings allocation formula that determines income per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Under the two-class method, basic income ~~(loss)~~ per common share is computed by dividing net income ~~(loss)~~ attributable to common shares after allocation of income to participating securities by the weighted-average number of common shares outstanding during the ~~period.~~year. Diluted income ~~(loss)~~ per common share is computed using the more dilutive of the two-class method or the if-converted method. In periods of net loss, no effect is given to participating securities since they do not contractually participate in the losses of the Company.

The following table reconciles net income and the weighted average common shares outstanding used in the computations of basic and diluted income ~~(loss)~~ per common share (in thousands, except for share and per share data):

Thirteen Weeks Ended Twenty-Six Weeks Ended
August 3, 2013 July 28, 2012 August 3, 2013 July 28, 2012
Numerator:
Net income $ 4,069
$ 1,247
$ 5,639
$ 90
Dividend paid to preferred shareholders —
(62,504 ) —
(62,504 )
Dividend paid to unvested restricted shareholders —
(2,899 ) —
(2,899 )
Net income attributable to participating securities (52 ) —
(91 ) —
Net income (loss) attributable to common shareholders $ 4,017
$ (64,156 ) $ 5,548
$ (65,313 )
Denominator:
Weighted-average common shares outstanding - basic 53,334,551
18,803,979
53,138,198
17,627,376
Dilutive impact of options and employee stock purchase plan 469,988
—
463,261
—
Weighted-average common shares outstanding - diluted 53,804,539
18,803,979
53,601,459
17,627,376
Per common share:
Basic income (loss) per common share $ 0.08
$ (3.41 ) $ 0.10
$ (3.71 )
Diluted income (loss) per common share $ 0.07
$ (3.41 ) $ 0.10
$ (3.71 )



	Thirteen Weeks Ended					Twenty-Six Weeks Ended
	August 2, 2014		August 3, 2013			August 2, 2014			August 3, 2013
Numerator:
Net income	$	8,320	$	4,069		$	11,400		$	5,639
Net income attributable to participating securities	—		(52		)	(38		)	(91		)
Net income attributable to common shareholders	$	8,320	$	4,017		$	11,362		$	5,548
Denominator:
Weighted average common shares outstanding - basic	54,280,336		53,334,551			54,072,660			53,138,198
Dilutive impact of options and employee stock purchase plan	389,264		469,988			408,880			463,261
Weighted average common shares outstanding - diluted	54,669,600		53,804,539			54,481,540			53,601,459
Per common share:
Basic income per common share	$	0.15	$	0.08		$	0.21		$	0.10
Diluted income per common share	$	0.15	$	0.07		$	0.21		$	0.10

For the twenty-six weeks ended August 2, 2014, $38.0 thousand of net income was attributable to participating securities, as the two-class method was more dilutive, and the remainder was attributable to common shareholders.

For the thirteen and twenty-six weeks endedAugust 3, 2013,, ~~$52.0~~ $52.0 thousand and ~~$91.0~~$91.0 thousand,, respectively, of net income was attributable to participating securities, as the two-class method was more dilutive, and the remainder was attributable to common shareholders. ~~For the~~ ~~thirteen and twenty-six weeks endedJuly 28, 2012, as the Company was in a net loss position, the net losses were solely attributable to common shareholders.~~

~~The Company's preferred stock (note 5) was converted to common stock on July 24, 2012 and was included in the computation of loss per share during the~~ ~~thirteen and twenty-six weeks endedJuly 28, 2012~~ ~~on a weighted-average basis.~~

The effects of the assumed exercise of stock options for ~~376,040~~555,081 and ~~245,996~~581,127 shares of common stock for the thirteen and twenty-six weeks endedAugust ~~3, 2013~~,2, 2014, respectively, were excluded from the calculation of diluted net income per share as their impact would have been anti-dilutive.

The effects of the assumed exercise of ~~the combined~~ stock options for 376,040 and ~~warrants and vesting of restricted share awards of~~ ~~2,588,032~~245,996 shares of common stock ~~as of July 28, 2012~~for the thirteen and twenty-six weeks ended August 3, 2013, respectively, were excluded from the calculation of diluted net ~~loss for the~~ ~~thirteen and twenty-six weeks endedJuly 28, 2012~~,income per share as ~~the effect~~their impact would ~~be anti-dilutive due to the net losses attributable to common shareholders.~~

have been anti-dilutive.

The aforementioned excluded shares do not reflect the impact of any incremental repurchases under the treasury stock method.

~~(3)Term Loan Facility and Line of Credit~~


(3)	Term Loan Facility and Line of Credit

Term Loan Facility

On May 16, 2012, the Company entered into a $100.0 million ~~term loan facility~~Term Loan Facility with Goldman Sachs Bank USA as administrative agent for a syndicate of lenders (the “Term Loan Facility”). ~~The Company used the net proceeds from the Term Loan Facility and cash on hand to pay a dividend on all outstanding shares of the Company's common and preferred stock (note 5), totaling~~ ~~$99.5 million~~. On ~~the same day, the Company amended and restated its existing senior secured Revolving Credit Facility with Wells Fargo Bank, National Association, which is defined below under “—Line of Credit.”~~

~~The Term Loan Facility provided for a term loan of~~ ~~$100.0 million~~ and matures on the earlier of (i) May 16, 2015 and (ii) the date on which such facility is accelerated following the occurrence of an event of default. The Term Loan Facility provides for interest on borrowings, at the option of the Company, at an alternate base rate which is the greater of (i) the administrative agent’s prime rate in effect on such day and (ii) the federal funds effective rate in effect on such day plus ~~0.50%~~ ~~with a~~ ~~2.00%~~ ~~floor, plus a margin of~~ ~~3.25%, or a London Interbank Offer Rate (“LIBOR”) based rate with a~~ ~~1.00%~~ ~~floor plus a margin of~~ ~~4.25%. The credit agreement for the Term Loan Facility includes a maximum consolidated net leverage ratio financial covenant, the calculation of which allows the Company to net up to~~ ~~$10.0 million~~ ~~of its cash and cash equivalents against its indebtedness. The Company’s leverage ratio must not exceed~~ ~~2.75x to~~ ~~2.50x for the testing periods in calendar year 2013,~~ ~~2.00x for the testing periods in calendar year 2014 and~~ ~~1.75x thereafter.~~

The credit agreement for the Term Loan Facility also includes customary negative and affirmative covenants including, among others, limitations on the Company’s ability to: (i) incur additional debt; (ii) create liens; (iii) make certain investments, loans and advances; (iv) sell assets; (v) pay dividends or make distributions or other restricted payments; (vi) engage in mergers or consolidations; or (vii) change its business.

The Term Loan Facility is subject to repayment upon the receipt of certain proceeds, including those from the sale of certain assets, insurance proceeds and indebtedness not otherwise permitted. The Term Loan Facility was also subject to repayment of ~~$50.0 million~~ ~~upon the receipt of proceeds from the Company’s initial public offering (the “IPO”). The Company closed its IPO on July 24, 2012. In July 2012, the Company repaid~~ ~~$65.3 million~~ ~~of principal on the Term Loan Facility and~~ ~~$0.7 million~~ ~~of interest. In October 2012 and May 2013, the Company repaid~~ ~~$0.3 million~~ ~~and~~ ~~$15.0 million, respectively, of principal on the Term Loan Facility. As of~~ ~~August 3, 2013, the balance outstanding under the Term Loan Facility was~~ ~~$19.5 million, bearing interest at a rate of~~ ~~5.25%. During the~~ ~~thirteen and twenty-six weeks endedAugust 3, 2013, the Company paid interest of approximately~~ ~~$0.3 million~~ ~~and~~ ~~$0.8 million, respectively, related to the Term Loan Facility. Pursuant to the terms of the Term Loan Facility, due to the repayment of~~ ~~$65.3 million~~ ~~of principal under the Term Loan Facility in July 2012, the Company is no longer required to make minimum quarterly payments. The remaining unpaid balance will be due upon maturity.~~

~~In connection with the Term Loan Facility, the Company incurred deferred financing costs of~~ ~~$2.7 million~~ ~~which are being amortized over the term of the Term Loan Facility. The amortization is included in interest expense, net, in the consolidated statements of operations. In connection with the~~ ~~$65.3 million~~ ~~principal repayment on the Term Loan Facility in July 2012 and the~~ ~~$15.0 million~~ ~~principal repayment on the Term Loan Facility in May 2013, approximately~~ ~~$1.6 million~~ ~~and~~ ~~$0.3 million, respectively, of the deferred financing costs were written off and included in loss on debt extinguishment in the consolidated statements of operations for the~~ ~~thirteen and twenty-six weeks endedJuly 28, 2012~~ ~~and~~ ~~August 3, 2013. The remaining deferred financing costs, net of amortization, are included in other assets on the balance sheet as of~~ ~~August 3, 2013~~.

Amounts under the credit agreement for the Term Loan Facility may become due upon certain events of default including, among others, failure to comply with the credit agreement’s covenants, bankruptcy, default on certain other indebtedness or a change in control. The default rate under the Term Loan Facility is ~~2.00%~~ ~~per annum.~~

On June 12, 2013,, in connection with the Restructuring, the Subsidiary acceded to the credit agreement and certain ancillary documents to the Company's Term Loan Facility as a guarantor of the Company's obligations thereunder.

~~All obligations~~ In February 2014, the Company repaid the remaining principal balance outstanding under the Term Loan Facility ~~are secured by substantially all~~ of ~~the Company’s assets and are guaranteed by the Subsidiary. As of~~ ~~August 3, 2013, the Company was in compliance with the financial covenant and other covenants applicable to it under the Term Loan Facility.~~$19.5 million.

Line of Credit

On August 18, 2006, the Company entered into a loan and security agreement (the “Loan and Security Agreement”) ~~with Wachovia Bank National Association (predecessor in interest to Wells Fargo Bank, National Association)~~ that included a revolving line of credit with advances tied to a borrowing base. The Loan and Security Agreement has been amended and/or restated several times, the latest on June 12, 2013 (as amended and restated, the “Revolving Credit Facility”), generally to extend the maturity date, increase maximum borrowings, adjust the applicable interest rates, permit the formation and capitalization of subsidiaries, make the Subsidiary a party to the agreement as a guarantor of ~~the Company's~~our obligations and modify certain definitions.

The Revolving Credit Facility allows maximum borrowings of ~~$20.0~~$20.0 million with advances tied to a borrowing base and expires on the earliest to occur of (i) May 16, 2017 ~~(ii) the date which is~~ 45 ~~days prior to the maturity date of the Term Loan Facility if the Term Loan Facility remains outstanding~~ or ~~(iii)~~(ii) upon the occurrence of an event of default. The Revolving Credit Facility may be increased to $30.0 million upon certain conditions. The Revolving Credit Facility includes a ~~$5.0~~$5.0 million ~~sub limit~~ sub-limit for the issuance of letters of credit. The borrowing base is 90% of eligible credit card receivables plus 90% of the net recovery percentage of eligible inventory less established reserves. ~~In connection with the~~

~~Revolving Credit Facility, the Company incurred deferred financing costs of~~ ~~$50 thousand~~ ~~in May 2012, which are being amortized over the remaining term of the Revolving Credit Facility.~~

The Revolving Credit Facility provides for interest on borrowings, at the Company's option, at (a) a prime rate plus a margin of (i) 0.75%if excess availability is greater than or equal to 75%, (ii) 1.0% if excess availability is less than 75%but greater than or equal to 33% or (iii) 1.25%if excess availability is less than 33% or (b) a LIBOR-based rate plus a margin of (i) 1.75% if excess availability is greater than or equal to 75%, (ii)2.00% if excess availability is less than 75% but greater than or equal to 33% or (iii) 2.25% if excess availability is less than 33%. The Revolving Credit Facility further provides for a letter of credit fee equal to the LIBOR-based rate plus (i) 1.75% if excess availability is greater than or equal to 75%, (ii) 2.00% if excess availability is less than 75% but greater than or equal to 33% or (iii) 2.25% if excess availability is less than 33%. The Revolving Credit Facility also contains an unused credit facility fee of 0.375% per annum and is subject to a servicing fee of approximately ~~$12~~$12.0 thousand per year.

The Revolving Credit Facility includes a covenant which requires the Company to maintain minimum excess collateral availability of no less than the greater of (i)10%of the then effective maximum credit and (ii)$3.0 million.

The Revolving Credit Facility also includes customary negative and affirmative covenants including, among others, limitations on the ~~Company’s~~Company's ability to (i) incur additional debt; (ii) create liens; (iii) make certain investments, loans and advances; (iv) sell assets; (v) pay dividends or make distributions or other restricted payments; (vi) engage in mergers or consolidations; or (vii) change the Company's business.

Additionally, the Revolving Credit Facility is subject to payment upon the receipt of certain proceeds, including those from the sale of certain assets and is subject to an increase in the interest rate on borrowings and the letter of credit fee of 2.0% upon an event of default. Amounts under the Revolving Credit Facility may become due upon certain events of default including, among others, failure to comply with the Revolving Credit ~~Facility's~~Facility’s covenants, bankruptcy, default on certain other indebtedness or a change in control.

As of August ~~3, 2013~~,2, 2014, the Company had no borrowings ~~outstanding~~under the Revolving Credit Facility and had approximately~~$19.1 million~~ ~~of the~~ $20.0 million available on the line of ~~credit under the Revolving Credit Facility, as approximately~~ ~~$0.9 million~~ ~~was outstanding in letters of~~ credit.

All obligations under the Revolving Credit Facility are secured by substantially all of the ~~Company’s~~Company's assets and are guaranteed by the Subsidiary. As ofAugust ~~3, 2013~~,2, 2014, the Company was in compliance with the covenants applicable to it under the Revolving Credit Facility.


(4)	Commitments and Contingencies

~~(4)Commitments and Contingencies~~

~~The Company leases property and equipment under non-cancelable operating leases. Certain retail store lease agreements provide for contingent rental payments if~~During the store’s net sales exceed stated levels (percentage rents) and/or contain escalation clauses, which provide for increases in base rental for increases in future operating costs. Many of the Company’s leases provide for one or more renewal options for periods ranging from ~~five~~ to ~~seven~~ ~~years. The Company’s operating lease agreements, including assumed extensions which are generally those that take the lease to a~~ ~~ten-year term, expire through 2023.~~

~~The Company’s minimum rental commitments under operating lease agreements, including assumed extensions, as of~~ ~~August 3, 2013, are as follows (in thousands):~~

Retail
stores

Corporate
office and
distribution
centers
Total
Fiscal year:
Remaining 2013 $ 21,366
$ 1,762
$ 23,128
2014 44,476
4,413
48,889
2015 44,014
4,678
48,692
2016 43,033
3,097
46,130
2017 42,609
2,610
45,219
Thereafter 165,118
13,031
178,149
$ 360,616
$ 29,591
$ 390,207

~~Rent expense, including base and contingent rent under operating leases, was~~ ~~$10.1 million~~ ~~and~~ ~~$8.2 million~~ ~~for the~~ thirteen weeks endedAugust ~~3, 2013~~ ~~and~~ ~~July 28, 2012, respectively. Contingent rents were~~ ~~$0.2 million~~ ~~and~~ ~~$0.1 million~~ ~~for~~2, 2014, the Company committed to 16 new store leases with terms of 10 years that have future minimum lease payments of approximately $27.4 million.

During the thirteen weeks ended August 2, 2014, the Company signed a lease for a new distribution center in Oldmans Township, New Jersey to support the Company's anticipated growth, which the Company expects to be fully operational during the fiscal year ended January 30, 2016. The Company will initially occupy approximately 700,000 square feet and will expand to approximately one million square feet. Thelease agreement expires in 2025 with options to renew for three successive five-year periods with future minimum lease payments of approximately $44.6 million.

From August 3, ~~2013~~ ~~and~~ ~~July 28, 2012, respectively.~~

~~Rent expense, including base and contingent rent under operating~~2014 to September 11, 2014, the Company committed to 5 new store leases ~~was~~ ~~$19.6 million~~ ~~and~~ ~~$15.2 million~~ ~~for the~~ ~~twenty-six weeks endedAugust 3, 2013~~ ~~and~~ ~~July 28, 2012, respectively. Contingent rents were~~ ~~$0.3 million~~ ~~and~~ ~~$0.2 million~~ ~~for the~~ ~~twenty-six weeks endedAugust 3, 2013~~ ~~and~~ ~~July 28, 2012, respectively.~~

with terms of 10 years that have future minimum lease payments of approximately $7.8 million.

The Company has employment agreements with certain key employees that provide for, among other things, salary, bonus, severance, and change-in-control provisions. The severance and change of control provisions under these agreements provide for additional payments upon employee separation of up to approximately $~~3.9~~5.7 million.

From time to time, the Company is involved in certain legal actions arising in the ordinary course of business. In management’s opinion, the outcome of such actions will not have a material adverse effect on the Company’s financial condition or results of operations.

As of August ~~3, 2013~~,2, 2014, the Company has other purchase commitments of approximately ~~$0.4~~$0.4 million consisting of purchase agreements for materials that will be used in the construction of new stores.


(5)	Shareholders’ Equity

~~(5)~~In ~~Shareholders’ Equity~~

~~As of~~ ~~August 3, 2013~~March 2012, ~~the Company is authorized to issue~~ ~~120,000,000~~ ~~shares of common stock,~~ ~~$0.01~~ ~~par value, and~~ ~~5,000,000~~ ~~shares of preferred stock,~~ ~~$0.01~~ ~~par value. The holders of common stock are entitled to~~ ~~one~~ vote per share of common stock and are entitled to receive dividends if declared by the board of directors. The preferred stock may be issued from time to time in series as designated by the board of directors. The designations, powers, preferences, voting rights, privileges, options, conversion rights and other special rights of the shares of each such series of preferred stock and the qualifications, limitations and restrictions thereof shall be designated by the board of directors.

~~Preferred Stock~~

~~On October 14, 2010, the Company issued~~ ~~89,291,773~~ ~~shares of Series A~~ 8% ~~Convertible Preferred Stock for cash proceeds of~~ ~~$191.9 million, net of offering costs of~~ ~~$2.1 million. The shares of Series A~~ 8% ~~Convertible Preferred Stock were entitled to receive cumulative dividends of~~ 8% ~~of their original issue price of~~ ~~$2.17~~ per share per year compounded annually and payable in cash when and if declared by the Company’s board of directors; however, the Company could not pay, unless otherwise consented to by the holders of Series A 8% ~~Convertible Preferred Stock, any dividends on common stock unless an equal amount of dividends per share (on an as converted basis) was simultaneously paid to the holders of the Series A~~ 8% ~~Convertible Preferred Stock. Effective immediately prior to the closing of the IPO on July 24, 2012, all outstanding shares of Series A~~ 8% ~~Convertible Preferred Stock were converted into~~ ~~30,894,953~~ ~~shares of common stock and ceased to be entitled to the payment of any dividends that accrued on such shares as of the effective time of the conversion.~~

~~In the event of any liquidation, dissolution, or winding up of the Company, as defined, or deemed liquidation event, as defined, the holders of the Series A~~ 8% ~~Convertible Preferred Stock were entitled to receive the greater of the original issue price of~~ ~~$2.17~~ ~~per share plus any accrued and unpaid dividends, or the amount that would have been paid if the Series A~~ 8% ~~Convertible Preferred Stock was converted to common stock, before any payment was made to the common shareholders. The Series A~~ 8% ~~Convertible Preferred Stock was presented outside of shareholders’ equity (deficit) since its redemption under certain circumstances was beyond the control of the Company’s management.~~

~~Common Stock~~

~~In March 2012,~~ options to purchase 2,020,620 shares of common stock granted during ~~the~~ fiscal ~~year ended January 29, 2011,~~2010, including options to purchase 1,010,310 shares that were subject to time-based and performance-based vesting, were cancelled and an equal number

of restricted shares were granted. One-third of the shares vested ~~immediately~~ in March 2012 ~~and another~~, one-third of the shares vested in March ~~2013. The remaining~~2013, and the last one-third ~~will vest~~vested in March 2014.

In connection with the cancellation and grant, the Company ~~will record~~recorded total compensation expense of $17.4 million~~, of which~~ including $5.3 million which was recorded on the date of the modification and the remainder, ~~is being~~which was recorded on a straight-line basis over the two-year vesting period.

~~On July 17, 2012, the Company amended its articles of incorporation to reflect a~~ ~~0.3460-for-1 reverse stock split of~~

~~its common stock.~~ The ~~amendment also changed the authorized shares of the Company's common stock to~~ ~~120,000,000~~ ~~shares.~~

~~Concurrent with the reverse stock split, the Company adjusted (i) the conversion price of its Series A~~ 8% ~~Convertible Preferred~~

~~Stock, (ii) the number of shares subject to~~remaining expense and ~~the exercise price of its outstanding stock option awards under its equity~~

~~incentive plan and (iii) the number of shares subject to and the exercise price of its outstanding warrants to equitably reflect the~~

~~split. All common stock share and per-share data included in the consolidated financial statements and footnotes thereto give effect~~vesting related to the ~~reverse stock split~~cancellation and grant was recognized during the ~~change in authorized shares and have been adjusted retroactively for all periods presented.~~

~~On September 27, 2012, the Company’s board~~first quarter of directors approved the Five Below, Inc. 2012 Employee Stock Purchase Plan (the “ESPP”), which remained subject to shareholder approval. The Company's shareholders approved the ESPP on May 30, 2013, at the Company's annual meeting of shareholders. The number of shares of common stock reserved for issuance, which is subject to other limitations, is 2014.~~500,000~~ ~~shares. The ESPP allows eligible employees the opportunity to purchase shares of the Company’s common stock through payroll deductions at a discount of~~ ~~10%~~ of the fair market value of such shares on the purchase date. The ESPP's effective date is retroactive to January 1, 2013 and is intended to be qualified as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code of 1986.

~~On February 4, 2013, the Company completed a secondary public offering of~~ ~~13,012,250~~ ~~shares of common stock at a price of~~ ~~$35.65~~ per share. The shares sold in the secondary public offering were registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company's registration statements on Form S-1 (File No. 333-186043 and File No. 333-186275), which were declared effective by the Securities and Exchange Commission on January 29, 2013. All of the shares sold in the secondary public offering were sold by selling shareholders and the Company did not receive any proceeds. The Company incurred fees of approximately ~~$1.0 million~~ related to legal, accounting and other fees in connection with the secondary public offering, which are included in selling, general and administrative expenses in the fiscal 2012 statement of operations.

~~On July 1, 2013, the Company completed a secondary public offering of 6,900,000 shares of common stock at a price of~~ ~~$36.00~~ per share. The shares sold in the secondary public offering were registered under the Securities Act pursuant to the Company's registration statement on Form S-1 (File No. 333-188578), which was declared effective by the Securities and Exchange Commission on June 26, 2013. All of the shares sold in the secondary public offering were sold by selling shareholders and the Company did not receive any proceeds. The Company incurred fees of approximately ~~$1.0 million~~ related to legal, accounting and other fees in connection with the secondary public offering, which are included in selling, general and administrative expenses in the consolidated statements of operations for the ~~thirteen and twenty-six weeks endedAugust 3, 2013~~.


(6)	Share-Based Compensation

~~(6)Common Stock Options~~

Equity Incentive Plan

Effective July 26, 2002, the Company adopted the 2002 Equity Incentive Plan (the “Plan”) pursuant to which the Company’s board of directors may grant stock options, restricted shares, and restricted ~~shares~~stock units to officers, directors, key employees and professional service providers. The Plan, as amended, allows for the issuance of up to a total of 7,600,000 shares under the Plan. As of August 2, 2014, 4,331,622 stock options, restricted shares, or restricted stock units were available for grant.

Common Stock Options

All stock options have a term not greater than 10ten years. Stock options vest and become exercisable in whole or in part, in accordance with vesting conditions set by the Company’s board of directors. Options granted to date generally vest over four years from the date of grant. ~~As of~~ ~~August 3, 2013~~, ~~4,520,782~~ ~~stock options or restricted shares were available for grant.~~

~~On August 25, 2010, the Company’s board of directors agreed to allow option holders, as of that date, to exercise, during a~~ ~~twenty~~ day offer period, all options issued and outstanding under the Plan, regardless if those options were vested and exercisable (“Vested Options”) or were not currently vested and exercisable (“Unvested Options”). On October 13, 2010, the holders of the stock options exercised all of their outstanding Vested Options and Unvested Options to purchase shares of the Company’s common stock. The Unvested Options were exercised for restricted shares of common stock that have the same vesting schedule as the Unvested Options that were exercised for those shares. The restricted shares are subject to repurchase by the Company should the option holder’s employment be terminated prior to the vesting at a purchase price equal to the lesser of: (i) the exercise price paid for the restricted shares, and (ii) the fair market value of the restricted shares at the time of repurchase. For accounting purposes, as the shares remain subject to their original vesting provisions, the early exercises are being recorded as if the original options remain outstanding until the respective shares vest. Exercise proceeds received prior to the shares vesting are recorded as a deposit liability in other accrued expenses on the balance sheets. As of ~~August 3, 2013~~, ~~$0.2 million~~ ~~was recorded as a deposit liability.~~

~~The following table summarizes the activity related to the restricted shares of common stock (in thousands, except share data):~~

Number of
shares

Deposit
liability
Unvested, February 2, 2013 31,542
$ 308
Vested (17,019 ) (120 )
Repurchases upon employee termination (259 ) (3 )
Unvested, August 3, 2013 14,264
$ 185

Stock option activity under the Plan was as follows:


	Options outstanding		Weighted average exercise price		Weighted average remaining contractual term	Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Balance at February 2, 2013	1,187,817		$	10.43	9.3
Balance as of February 1, 2014						1,304,620		$	20.90	8.5
Granted	518,500		37.98			219,631		30.21
Forfeited	(19,467	)	9.35			(113,196	)	32.73
Cancelled	(35,300	)	30.19			(20,000	)	39.41
Exercised	(48,875	)	4.28			(105,306	)	6.72
Balance at August 3, 2013	1,602,675		$	19.11	9.0
Exercisable at August 3, 2013	83,767		$	4.37	7.8
Balance as of August 2, 2014						1,285,749		22.32		8.3
Exercisable as of August 2, 2014						372,036		$	9.15	7.4

The fair value of each option award granted to employees, including outside directors, is estimated on the date of grant and the fair value of each option award granted to non-employees is estimated on the date of grant and is required to be periodically revalued over the contractual period until the option award is exercised or forfeited using the Black-Scholes option-pricing model with the following weighted average assumptions:


	Twenty-Six Weeks Ended				Twenty-Six Weeks Ended
	August 3, 2013		July 28, 2012		August 2, 2014		August 3, 2013
Expected volatility	50.0	%	50.0	%	47.0	%	50.0	%
Risk-free interest rate	1.5	%	1.4	%	1.9	%	1.5	%
Expected life of options - for employee grants	6.3 years		6.3 years
Expected life of options					6.4 years		6.3 years
Expected dividend yield	—	%	—	%	—	%	—	%

The Company uses the simplified method to estimate the expected term of the option. The expected volatility incorporates historical and implied volatility of similar entities whose share ~~price~~prices are publicly available. The risk-free rate for the expected term of the option ~~was~~is based on the U.S. Treasury yield curve in effect at the time of grant.

The per-share weighted average grant-date fair value of stock options granted to employees, including outside directors, for the twenty-six weeks ended August 2, 2014 and August 3, 2013 was $17.74 and ~~July 28, 2012~~$18.62, respectively.

Restricted Stock Units and Performance-Based Restricted Stock Units

All restricted stock units ("RSU") and performance-based restricted stock units ("PSU") vest in accordance with vesting conditions set by the compensation committee of the Company’s board of directors. RSU's granted to date have vesting periods ranging from less than one year to five years from the date of grant. PSU's granted to date vest 100% at the end of a cumulative three year performance period, subject to satisfaction of the applicable performance goals established for the respective grant. The Company periodically assesses the probability of achievement of the performance criteria and adjusts the amount of compensation expense accordingly. Compensation is recognized over the vesting period and adjusted for the probability of achievement of the performance criteria.

RSU and PSU activity during the twenty-six weeks ended August 2, 2014 was ~~$18.62~~ ~~and~~ ~~$4.85, respectively.~~as follows:



	Restricted Stock Units			Performance-Based Restricted Stock Units
	Number	Weighted-Average Grant Date Fair Value		Number		Weighted-Average Grant Date Fair Value
Balance as of February 1, 2014	—	$	—	—		$	—
Granted	162,222	35.93		84,094		35.88
Vested	—	—		—		—
Forfeited	—	—		(3,874	)	38.71
Balance as of August 2, 2014	162,222	$	35.93	80,220		$	35.74

As of August ~~3, 2013~~,2, 2014, there was $~~17.7~~19.1 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the ~~Plan, which~~Plan. That cost is expected to be recognized over a weighted average vesting period of ~~2.7~~3.1 years.


(7)	Income Taxes

~~(7)Income Taxes~~

The following table summarizes the Company’s income tax expense and effective tax rates for the thirteen and twenty-six weeks ended August 2, 2014 and August 3, 2013 ~~and~~ ~~July 28, 2012~~ (in thousands):

Thirteen Weeks Ended Twenty-Six Weeks Ended
August 3, 2013 July 28, 2012 August 3, 2013 July 28, 2012
Income (loss) before income taxes $ 6,529
$ 2,090
$ 9,207
$ 162
Income tax expense (benefit) $ 2,460
$ 843
$ 3,568
$ 72
Effective tax rate 37.7 % 40.3 % 38.8 % 44.4 %



	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	August 2, 2014			August 3, 2013			August 2, 2014			August 3, 2013
Income before income taxes	$	13,325		$	6,529		$	18,271		$	9,207
Income tax expense	$	5,005		$	2,460		$	6,871		$	3,568
Effective tax rate	37.6		%	37.7		%	37.6		%	38.8		%

The effective tax rates for the thirteen and twenty-six weeks ended August 2, 2014 and August 3, 2013 ~~and~~ ~~July 28, 2012~~ were based on the Company’s forecasted annualized effective tax rates and were adjusted for discrete items that occurred within the periods presented. The effective tax rate for the thirteen and twenty-six weeks endedAugust ~~3, 2013~~2, 2014 is being impacted by changes in the mix of projected pretax income across state jurisdictions and the Company's operating entities as a result of the Restructuring.

~~For the~~ ~~thirteen weeks endedAugust 3, 2013~~ ~~and~~ ~~July 28, 2012, total income taxes paid were~~ ~~$1.3 million~~ ~~and~~ ~~$1.8 million, respectively. For the~~ ~~twenty-six weeks endedAugust 3, 2013~~ ~~and~~ ~~July 28, 2012, total income taxes paid were~~ ~~$9.4 million~~ ~~and~~ ~~$10.7 million, respectively.~~

The Company had no material accrual for uncertain tax positions or interest or penalties related to income taxes on the Company’s ~~consolidated~~ balance sheets atas of August ~~3, 2013~~2, 2014, February ~~2, 2013~~ ~~and~~ ~~July 28, 2012~~1, 2014, or August 3, 2013 and has not recognized any material uncertain tax positions or ~~material~~ interest and/or penalties related to income taxes in the consolidated statements of operations for the thirteen weeks and twenty-six weeks ended August 2, 2014 or August 3, ~~2013~~2013. ~~and~~ ~~July 28, 2012~~.

The Company files a federal income tax return as well as state tax returns. The Company’s U.S. federal income tax returns for the fiscal years ended January 30, ~~2010~~2011 and thereafter remain subject to examination by the U.S. Internal Revenue Service (“IRS”). State returns are filed in various state jurisdictions, as appropriate, with varying statutes of limitation and remain subject to examination for varying periods up to 3 to 4 years depending on the state.

~~(8) Related-Party Transactions~~

~~During the~~ ~~thirteen weeks endedAugust 3, 2013~~ ~~and~~ ~~July 28, 2012, the Company incurred fees of~~ ~~$0.7 million~~ ~~and~~ ~~$1.4 million, respectively, related to services provided by certain shareholders and professional service firms for which certain shareholders are partners. Fees related to the~~ ~~thirteen weeks endedJuly 28, 2012~~ ~~were primarily IPO-related fees.~~

~~During the~~ ~~twenty-six weeks endedAugust 3, 2013~~ ~~and~~ ~~July 28, 2012, the Company incurred fees of~~ ~~$1.0 million~~ ~~and~~ ~~$2.7 million, respectively, related to services provided by certain shareholders and professional service firms for which certain shareholders are partners. Fees related to the~~ ~~twenty-six weeks endedJuly 28, 2012~~ ~~were primarily IPO-related fees.~~

1312

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with “Selected Financial ~~Data”~~and Other Data,” and the consolidated financial statements and related notes included in our Annual Report on Form 10-K for our fiscal year ended February ~~2, 2013~~1, 2014 and referred to herein as the ~~“Annual~~"Annual Report,”" and the consolidated financial statements and related notes as of and for the thirteen and twenty-six weeks ended August ~~3, 2013~~2, 2014 included in Part I, Item 1I of this Quarterly Report on Form 10-Q. The statements in this discussion regarding expectations of our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described below in “Special Note Regarding Forward-Looking Statements” and in Part II, ~~"Item 1A. Risk~~Item 1A "Risk Factors.”" Our actual results may differ materially from those contained in or implied by any forward-looking statements.

We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to January 31 of the following year. References to "fiscal year 2014" or "fiscal 2014" refer to the period from February 2, 2014 to January 31, 2015 and consists of a 52-week fiscal year. References to “fiscal year 2013” or “fiscal 2013” refer to the period from February 3, 2013 to February 1, 2014 and consists of a 52-week fiscal year. References to “fiscal year 2012” or “fiscal 2012” refer to the period from January 29, 2012 to February 2, 2013 and ~~consisted~~consists of a 53-week fiscal year. The fiscal quarters ~~and year-to-date periods~~ ended August ~~3, 2013~~2, 2014 and ~~July 28, 2012~~August 3, 2013 refer to the ~~13-week~~thirteen weeks ended as of those dates. The year-to-date periods ended August 2, 2014 and ~~26-week~~August 3, 2013 ~~periods~~refer to the twenty-six weeks ended as of those dates. Historical results are not necessarily indicative of the results to be expected for any future period and results for any interim period may not necessarily be indicative of the results that may be expected for a full year.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or present facts or conditions, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the introduction of new merchandise, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or the negative of these terms or other comparable terminology.

The forward-looking statements contained in this Quarterly Report on Form 10-Q reflect our views as of the date of this report about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in Part I, ~~“Item 1A. Risk~~Item 1A “Risk Factors” in our Annual Report, as amended by the risk factors included in Part II, ~~“Item 1A. Risk Factors”~~Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q. These factors include without limitation:

•failure to successfully implement our growth strategy;

•disruptions in our ability to select, obtain, distribute and market merchandise profitably;

extreme weather conditions in the areas in which our stores are located could negatively affect our business and results of operations;

•our ability to successfully expand our distribution network capacity;

•disruptions to our distribution network or the timely receipt of inventory;

•inability to attract and retain qualified employees;

•ability to increase sales and improve the efficiencies, costs and effectiveness of our operations;

our dependence on our executive officers and other key personnel or our inability to hire additional qualified personnel;

•our ability to successfully manage our inventory balances and inventory shrinkage;

•our lease obligations;

changes in our competitive environment, including increased competition from other retailers and the presence of online retailers;

•increasing costs due to inflation, increased operating costs or energy prices;

•the seasonality of our business;

•disruptions to our information technology systems in the ordinary course or as a result of system upgrades;

•our failure to maintain adequate internal controls;

•our ability to obtain additional financing;

our failure to secure customers’ confidential or credit card information, or other private data relating to our employees or our company;

•natural disasters, unusual weather conditions, pandemic outbreaks, global political events, war and terrorism;

•current economic conditions and other economic factors;

•the impact of governmental laws and regulations and the outcomes of legal proceedings;

•our inability to protect our brand name, trademarks and other intellectual property rights;

•increased costs as a result of being a public company; and

•restrictions imposed by our indebtedness on our current and future operations.

Readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements. All of the forward-looking statements we have included in this ~~quarterly report~~Quarterly Report on Form 10-Q are based on information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.

Overview

Five Below ~~Inc.~~ is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the teen and pre-teen customer. We offer a dynamic, edited assortment of exciting products, all priced at $5 and below, including select brands and licensed merchandise across our category worlds. As of August ~~3, 2013~~,2, 2014, we operated ~~276~~353 stores in 1920 states.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. These key measures include net sales, comparable store sales, cost of goods sold and gross profit, selling, general and administrative expenses and operating income.

Net Sales

Net sales constitute gross sales net of merchandise returns for damaged or defective goods. Net sales consist of sales from comparable stores and non-comparable stores. Revenue from the sale of gift cards is deferred and not included in net sales until the gift cards are redeemed to purchase merchandise.

Our business is seasonal and as a result, our net sales fluctuate from quarter to quarter. Net sales are usually highest in the fourth fiscal quarter due to the year-end holiday season.

Comparable Store Sales

Comparable store sales include net sales from stores that have been open for at least 15 full months from their opening date. Comparable stores include the following:

Stores that have been remodeled while remaining open;

Stores that have been relocated within the same trade area, to a location that is not significantly different in size, in which the new store opens at about the same time as the old store closes; and

Stores that have expanded, but are not significantly different in size, within their current locations.

For stores that are relocated or expanded, the following periods are excluded when calculating comparable store sales:

The period beginning when the closing store receives its last merchandise delivery from one of our distribution centers through:


▪	the last day of the fiscal year in which the store was relocated or expanded (for stores that increased significantly in size); or


▪	the last day of the fiscal month in which the store re-opens (for all other stores); and

The period beginning on the first anniversary of the date the store received its last merchandise delivery from one of our distribution centers through the first anniversary of the date the store re-opened.

We had historically excluded stores that are relocated or expanded during the period of construction and pre-opening starting when the store closed. During the second quarter of 2013, we changed our comparable store sales calculation to exclude relocated or expanded stores starting when a store receives its last merchandise delivery from one of our distribution centers. This change would not significantly impact our historical comparable store sales calculations as previously reported.

There may be variations in the way in which some of our competitors and other retailers calculate comparable or “same store” sales. As a result, data in this ~~quarterly report~~Quarterly Report on Form 10-Q regarding our comparable store sales may not be comparable to similar data made available by other retailers. Non-comparable store sales are comprised of new store sales, sales for stores not open for a full 15 months, and sales from existing store relocation and expansion projects that were temporarily closed (or not receiving deliveries) and not included in comparable store sales.

Measuring the change in fiscal year-over-year comparable store sales allows us to evaluate how our store base is performing. Various factors affect comparable store sales, including:

consumer preferences, buying trends and overall economic trends;

our ability to identify and respond effectively to customer preferences and trends;

our ability to provide an assortment of high-quality, trend-right and everyday product offerings that generate new and repeat visits to our stores;

the customer experience we provide in our stores;

the level of traffic near our locations in the power, community and lifestyle centers in which we operate;

competition;

changes in our merchandise mix;

pricing;

our ability to source and distribute products efficiently;

the timing of promotional events and holidays;

the timing of introduction of new merchandise and customer acceptance of new merchandise;

our opening of new stores in the vicinity of existing stores;

the number of items purchased per store visit; and

weather conditions.

Opening new stores is an important part of our growth strategy. As we continue to pursue our growth strategy, we expect that a significant percentage of our net sales will continue to come from new stores not included in comparable store sales. Accordingly, comparable store sales is only one measure we use to assess the success of our growth strategy.

Cost of Goods Sold and Gross Profit

Gross profit is equal to our net sales less our cost of goods sold. Gross margin is gross profit as a percentage of our net sales. Cost of goods sold reflects the direct costs of purchased merchandise and inbound freight, as well as store occupancy, distribution and buying expenses. Store occupancy costs include rent, common area maintenance, utilities and property taxes for all store locations. Distribution costs include costs for receiving, processing, warehousing and shipping of merchandise to or from our distribution centers and between store locations. Buying costs include compensation expense and other costs for our internal buying ~~organization.~~

organization, including our merchandising and product development team and our planning and allocation group. These costs are significant and can be expected to continue to increase as our company grows.

In July 2014, we signed a lease for a new distribution center in Oldmans Township, New Jersey to support our anticipated growth, which we expect to be fully operational during the fiscal year ended January 30, 2016. We will initially occupy approximately 700,000 square feet and will expand to approximately one million square feet. Delays in opening this new distribution center could adversely affect our future operations by slowing store growth, which could in turn reduce sales growth. In addition, any distribution-related construction or expansion projects entail risks which could cause delays and cost

overruns, such as: shortages of materials; shortages of skilled labor or work stoppages; unforeseen construction, scheduling, engineering, environmental or geological problems; weather interference; fires or other casualty losses; and unanticipated cost increases. The completion date and ultimate cost of this new distribution center, planned for the fiscal year ended January 30, 2016, could differ significantly from initial expectations due to construction-related or other reasons. In addition, the timing and amount of investments in our infrastructure and systems could affect the comparability of our results of operations in future periods.

The components of our cost of goods sold may not be comparable to the components of cost of goods sold or similar measures of our competitors and other retailers. As a result, data in this ~~quarterly report~~Quarterly Report on Form 10-Q regarding our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers.

The variable component of our cost of goods sold is higher in higher volume quarters because the variable component of our cost of goods sold generally increases as net sales increase. We regularly analyze the components of gross profit as well as gross margin. Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns, and a significant increase in inventory shrinkage or inability to generate sufficient sales leverage on the store occupancy, distribution and buying components of costs of goods sold could have an adverse impact on our gross profit and results of operations. Changes in the mix of our products may also impact our overall cost of goods sold.

Selling, General and Administrative Expenses

Selling, general and administrative, or SG&A, expenses are composed of payroll and other compensation, marketing and advertising expense, depreciation and amortization expense and other selling and administrative expenses. SG&A expenses as a percentage of net sales are usually higher in lower sales volume quarters and lower in higher sales volume quarters.

The components of our SG&A expenses may not be comparable to those of other retailers. We expect that our SG&A expenses will increase in future periods due to our continuing store growth and in part due to additional legal, accounting, insurance and other expenses we ~~expect to incur~~are incurring as a result of being a public company. Among other things, ~~we expect that~~the on-going compliance with the Sarbanes-Oxley Act of 2002 and related rules and regulations ~~could result~~have resulted in significant incremental legal, accounting and other overhead costs. In addition, any increase in future stock option or other stock-based grants or modifications will increase our stock-based compensation expense included in SG&A.

Operating Income

Operating income equals gross profit less SG&A expenses. Operating income excludes interest expense or income, loss on debt extinguishment and income tax expense or benefit. We use operating income as an indicator of the productivity of our business and our ability to manage SG&A expenses. Operating income percentage measures operating income as a percentage of our net sales.

~~Stock Split~~

On July 17, 2012, we amended our articles of incorporation to reflect a 0.3460-for-1 reverse stock split of our common stock. The amendment also changed the authorized shares of our common stock to 120,000,000 shares. Concurrent with the reverse stock split, we adjusted (i) the conversion price of our Series A 8% convertible preferred stock, (ii) the number of shares subject to and the exercise price of our outstanding stock option awards under our equity incentive plan and (iii) the number of shares subject to and the exercise price of our outstanding warrants to equitably reflect the split. All common stock share and per-share data presented in this quarterly report gives effect to the reverse stock split and the change in authorized shares and have been adjusted retroactively for all periods presented.

1716

Results of Consolidated Operations

The following tables summarize key components of our results of consolidated operations for the periods indicated, both in dollars and as a percentage of our net sales.


	Thirteen Weeks Ended						Twenty-Six Weeks Ended						Thirteen Weeks Ended						Twenty-Six Weeks Ended
	August 3, 2013			July 28, 2012			August 3, 2013			July 28, 2012			August 2, 2014			August 3, 2013			August 2, 2014			August 3, 2013
	(in millions, except total stores)
Statements of Operations Data: ⁽¹⁾
Consolidated Statements of Operations Data ⁽¹⁾:
Net sales	$	117.1		$	86.8		$	212.7		$	158.6		$	152.5		$	117.1		$	278.5		$	212.7
Cost of goods sold	77.7			58.1			143.1			106.9			101.6			77.7			188.6			143.1
Gross profit	39.4			28.7			69.6			51.8			50.9			39.4			89.8			69.6
Selling, general and administrative expenses	32.2			24.0			59.2			49.0			37.6			32.2			71.2			59.2
Operating income	7.2			4.7			10.4			2.8			13.3			7.2			18.6			10.4
Interest expense, net	0.4			1.3			0.9			1.3			—			0.4			0.1			0.9
Loss on debt extinguishment	0.3			1.6			0.3			1.6			—			0.3			0.2			0.3
Other income	—			(0.3		)	—			(0.3		)
Income before income taxes	6.5			2.1			9.2			0.2			13.3			6.5			18.3			9.2
Income tax expense	2.5			0.8			3.6			0.1			5.0			2.5			6.9			3.6
Net income	$	4.1		$	1.2		$	5.6		$	0.1		$	8.3		$	4.1		$	11.4		$	5.6
Percentage of Net Sales:
Percentage of Net Sales ⁽¹⁾:
Net sales	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%
Cost of goods sold	66.3		%	66.9		%	67.3		%	67.4		%	66.6			66.3			67.7			67.3
Gross profit	33.7		%	33.1		%	32.7		%	32.6		%	33.4			33.7			32.3			32.7
Selling, general and administrative expenses	27.5		%	27.7		%	27.9		%	30.9		%	24.6			27.5			25.6			27.9
Operating income	6.1		%	5.5		%	4.9		%	1.7		%	8.7			6.1			6.7			4.9
Interest expense, net	0.3		%	1.5		%	0.4		%	0.8		%	—			0.3			—			0.4
Loss on debt extinguishment	0.2		%	1.8		%	0.1		%	1.0		%	—			0.2			0.1			0.1
Other income	—		%	(0.3		)%	—		%	(0.2		)%
Income before income taxes	5.6		%	2.4		%	4.3		%	0.1		%	8.7			5.6			6.6			4.3
Income tax expense	2.1		%	1.0		%	1.7		%	—		%	3.3			2.1			2.5			1.7
Net income	3.5		%	1.4		%	2.7		%	0.1		%	5.5		%	3.5		%	4.1		%	2.7		%
Operational Data:
Total stores at end of period	276			226			276			226			353			276			353			276
Comparable store sales growth	6.6		%	8.6		%	5.4		%	9.4		%
Comparable stores sales growth													3.2		%	6.6		%	4.6		%	5.4		%
Average net sales per store ⁽²⁾	$	0.4		$	0.4		$	0.8		$	0.8		$	0.4		$	0.4		$	0.8		$	0.8


(1)	Components may not add to total due to rounding.


(2)	Only includes stores open during the full ~~period.~~thirteen weeks ended and twenty-six weeks ended presented periods.

Thirteen Weeks Ended August 2, 2014 Compared to the Thirteen Weeks Ended August 3, 2013 ~~Compared to the~~ ~~Thirteen Weeks EndedJuly 28, 2012~~

Net Sales

Net sales increased to ~~$117.1~~$152.5 million in the thirteen weeks ended August 2, 2014 from $117.1 million in the thirteen weeks ended August 3, 2013, ~~from~~ ~~$86.8~~ an increase of $35.4 million, ~~in the~~ ~~thirteen weeks endedJuly 28, 2012~~, an~~increase~~ of ~~$30.3 million~~, or ~~34.9%~~30.2%. The increase was the result of a non-comparable store sales increase of ~~$25.2~~$32.1 million and a comparable store sales increase of ~~$5.1 million~~.$3.3 million. The increase in non-comparable store sales was primarily driven by new stores in fiscal 2014 and the number of stores that opened in fiscal ~~2012~~2013 but have not been open for 15 full ~~months and new stores.~~months. We plan to open ~~60 net new~~approximately 62 stores ~~during~~in fiscal ~~2013.~~2014.

Comparable store sales increased ~~6.6%~~3.2% for the thirteen weeks endedAugust ~~3, 2013~~2, 2014 compared to the thirteen weeks ended~~July 28, 2012~~. August 3, 2013. This increase resulted from an increase of approximately ~~5.9%~~2.4% in the number of transactions in our stores and an increase in the average dollar value of transactions of approximately ~~0.7%~~0.8%.

1817

Cost of Goods Sold and Gross Profit

Cost of goods sold increased to $101.6 million in the thirteen weeks ended August 2, 2014 from $77.7 million in the thirteen weeks endedAugust 3, 2013, an ~~from~~ ~~$58.1 million~~ ~~in the~~ ~~thirteen weeks endedJuly 28, 2012~~, anincrease of ~~$19.6~~$23.9 million,, or ~~33.8%~~30.7%. The increase in cost of goods sold was primarily the result of a ~~$14.7 million~~an increase in the merchandise costs of goods resulting from anthe increase in ~~sales, a~~ ~~$2.6 million~~net sales. Also contributing to the increase in cost of goods sold were an increase in store occupancy costs ~~as a result of~~resulting from new store openings and a ~~$1.8 million~~an increase in distribution costs primarily due to anthe increase in ~~sales as well as the opening of a second distribution center~~.net sales.

Gross profit increased to ~~$39.4~~$50.9 million in the thirteen weeks ended August 2, 2014 from $39.4 million in the thirteen weeks ended August 3, 2013, ~~from~~ ~~$28.7~~ an increase of $11.5 million, ~~in the~~ ~~thirteen weeks endedJuly 28, 2012~~, an~~increase~~ of ~~$10.7 million~~, or ~~37.1%~~29.2%. Gross margin ~~increased~~decreased to 33.4% for the thirteen weeks ended August 2, 2014 from 33.7% in the thirteen weeks endedAugust 3, 2013, ~~from~~ ~~33.1%~~ ~~for the~~ ~~thirteen weeks endedJuly 28, 2012, an increase~~ a decrease of approximately 6030 basis points. The ~~increase~~decrease in gross margin was primarily ~~the result of the store~~driven by occupancy ~~costs increasing at a lower rate than the increase in net sales as well as the timing of new store openings, which increased margin by approximately~~ ~~110~~ ~~basis points. This increase was partially offset by the increase in distribution costs due to the opening of a second distribution center, which decreased margin by approximately~~ 60 ~~basis points.~~

costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to ~~$32.2~~$37.6 million in the thirteen weeks ended August 2, 2014 from $32.2 million in the thirteen weeks ended August 3, 2013, ~~from~~ ~~$24.0~~ an increase of $5.4 million, ~~in the~~ ~~thirteen weeks endedJuly 28, 2012~~, an~~increase~~ of ~~$8.2 million~~, or ~~34.2%~~16.6%. As a percentage of net sales, ~~selling, general and administrative~~SG&A expenses decreased approximately 20290 basis points to ~~27.5%~~24.6% in the thirteen weeks endedAugust ~~3, 2013~~2, 2014 compared to ~~27.7%~~27.5% in the thirteen weeks ended~~July 28, 2012~~. August 3, 2013. The increase in ~~selling, general and administrative~~SG&A expense was primarily the result of increases of ~~$4.8~~$5.8 million in store-related expenses ~~primarily~~ to support new store growth ~~$2.0~~and $1.9 million of ~~corporate related~~corporate-related expenses, partially offset by a decrease of $1.3 million in stock-based compensation expense and ~~$1.0~~$1.0 million of fees ~~incurred for~~related to our secondary public ~~offering.~~

~~Interest Expense, Net~~

~~Interest expense, net~~ ~~decreased~~ to ~~$0.4 million~~ inoffering that was incurred during the thirteen weeks endedAugust 3, ~~2013~~ ~~from~~ ~~$1.3 million~~ ~~of interest expense, net in the~~ ~~thirteen weeks endedJuly 28, 2012~~, a~~decrease~~ of ~~$0.9 million. The~~ ~~decrease~~ ~~in interest expense resulted from the decrease in the outstanding balance of our Term Loan Facility (see –“Liquidity and Capital Resources-Term Loan Facility” section below).~~

~~Loss on Debt Extinguishment~~

~~Loss on debt extinguishment decreased to~~ ~~$0.3 million~~ ~~in the~~ ~~thirteen weeks endedAugust 3, 2013~~ ~~from~~ ~~$1.6 million~~ ~~in the~~ ~~thirteen weeks endedJuly 28, 2012, a decrease of~~ ~~$1.3 million~~.2013. The decrease in stock-based compensation was driven by the ~~loss on debt extinguishment is due~~decrease of expense related to the ~~$15.0 million repayment on~~cancellation of certain stock options in exchange for the ~~$100.0 million Term Loan Facility~~grant of restricted shares in March 2012. The remaining expense and vesting related to the cancellation of certain stock options in exchange for the grant of restricted shares from March 2012 was recognized during the ~~thirteen weeks endedAugust 3, 2013~~ ~~compared to the $65.3 million repayment that we made during the~~ ~~thirteen weeks endedJuly 28, 2012~~.

first quarter of fiscal 2014.

Income Tax Expense

Income tax expense ~~for~~increased to $5.0 million in the thirteen weeks ended August 2, 2014 from $2.5 million in the thirteen weeks ended August 3, 2013, ~~was~~ ~~$2.5~~ an increase of $2.5 million, ~~compared to~~ ~~$0.8 million~~ ~~in income tax expense for the~~ ~~thirteen weeks endedJuly 28, 2012, an~~ ~~increase~~ of ~~$1.6 million~~ or approximately 103.5%. ~~This~~ The increase in income tax expense was primarily the result of a ~~$4.4~~$6.8 million increase in pre-tax income. Our effective tax rate ~~was~~ ~~37.7%~~for the thirteen weeks endedAugust ~~3, 2013~~2, 2014 was 37.6% compared to ~~40.3%~~ ~~for~~37.7% in the thirteen weeks ended~~July 28, 2012. Our effective tax rate for the~~ ~~thirteen weeks ended~~August 3, ~~2013~~ was lower than the comparable period as a result of changes in the mix of projected pretax income across state jurisdictions and the Company's operating entities as a result of the Restructuring. For the remainder of fiscal 2013, we believe our effective tax rate will be approximately ~~38.8%~~.

2013.

Net Income

As a result of the foregoing, net income increased to ~~$4.1~~$8.3 million in the thirteen weeks ended August 2, 2014 from $4.1 million in the thirteen weeks ended August 3, 2013, ~~from net income~~ an increase of ~~$1.2~~approximately $4.3 million, ~~in the~~ ~~thirteen weeks endedJuly 28, 2012~~, an~~increase~~ of ~~$2.8 million~~, or ~~226.3%~~104.5%.

Twenty-Six Weeks Ended August 2, 2014 Compared to the Twenty-Six Weeks Ended August 3, 2013 ~~Compared to the~~ ~~Twenty-Six Weeks EndedJuly 28, 2012~~

Net Sales

Net sales increased to ~~$212.7~~$278.5 million in the twenty-six weeks ended August 2, 2014 from $212.7 million in the twenty-six weeks ended August 3, 2013, ~~from~~ ~~$158.6~~ an increase of $65.8 million, ~~in the~~ ~~twenty-six weeks endedJuly 28, 2012~~, an~~increase~~ of ~~$54.0 million~~, or ~~34.1%~~30.9%. The increase was the result of a non-comparable store sales increase of ~~$46.0~~$56.8 million and a comparable store sales increase of ~~$8.0 million~~.$9.0 million. The increase in non-comparable store sales was primarily driven by the number of stores that opened in fiscal ~~2012~~2013 but have not been open for 15 full months and new ~~stores.~~stores in fiscal 2014. We plan to open ~~60 net new~~approximately 62 stores ~~during~~in fiscal ~~2013.~~2014.

Comparable store sales increased ~~5.4%~~4.6% for the twenty-six weeks endedAugust ~~3, 2013~~2, 2014 compared to the twenty-six weeks ended~~July 28, 2012~~. August 3, 2013. This increase resulted from an increase of approximately ~~4.4%~~3.8% in the number of transactions in our stores and an increase in the average dollar value of transactions of approximately ~~1.0%~~0.8%.

Cost of Goods Sold and Gross Profit

Cost of goods sold increased to ~~$143.1~~$188.6 million in the twenty-six weeks ended August 2, 2014 from $143.1 million in the twenty-six weeks ended August 3, 2013, ~~from~~ ~~$106.9~~ an increase of $45.6 million, ~~in the~~ ~~twenty-six weeks endedJuly 28, 2012~~, an~~increase~~ of ~~$36.2 million~~, or ~~33.9%~~31.8%. The increase in cost of goods sold was primarily the result of a ~~$26.5 million~~an increase in the merchandise costs of goods resulting from anthe increase in ~~sales, a~~ ~~$5.7 million~~net sales. Also contributing to the increase in cost of goods sold were an increase in store occupancy costs ~~as a result of~~resulting from new store openings and a ~~$3.2 million~~an increase in distribution costs primarily due to anthe increase in ~~sales as well as the opening of a second distribution center~~.net sales.

Gross profit increased to ~~$69.6~~$89.8 million in the twenty-six weeks ended August 2, 2014 from $69.6 million in the twenty-six weeks ended August 3, 2013, ~~from~~ ~~$51.8~~ an increase of $20.2 million, ~~in the~~ ~~twenty-six weeks endedJuly 28, 2012~~, an~~increase~~ of ~~$17.8 million~~, or ~~34.5%~~29.1%. Gross margin ~~increased~~decreased to 32.3% for the twenty-six weeks ended August 2, 2014 from 32.7% in the twenty-six weeks endedAugust 3, 2013, ~~from~~ ~~32.6%~~ ~~for the~~ ~~twenty-six weeks endedJuly 28, 2012, an increase~~ a decrease of approximately 1050 basis points. The ~~increase~~decrease in gross margin was ~~primarily~~ the result of ~~the~~an increase in ~~store occupancy and~~ buying ~~expense increasing at a lower rate than the increase in net sales as well as the timing of new store openings, which increased margin by approximately~~ 80 ~~basis points. This increase was partially offset by the increase in distribution costs due to the opening of a second distribution center, which decreased margin by approximately~~ 60 ~~basis points.~~

expense.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to ~~$59.2~~$71.2 million in the twenty-six weeks ended August 2, 2014 from $59.2 million in the twenty-six weeks ended August 3, 2013, ~~from~~ ~~$49.0~~ an increase of $12.0 million, ~~in the~~ ~~twenty-six weeks endedJuly 28, 2012~~, an~~increase~~ of ~~$10.2 million~~, or ~~20.9%~~20.3%. As a percentage of net sales, ~~selling, general and administrative~~SG&A expenses decreased approximately ~~300~~230 basis points to ~~27.9%~~25.6% in the twenty-six weeks endedAugust ~~3, 2013~~2, 2014 compared to ~~30.9%~~27.9% in the twenty-six weeks ended~~July 28, 2012~~. August 3, 2013. The increase in ~~selling, general and administrative~~SG&A expense was primarily the result of increases of ~~$9.5~~$11.4 million in store-related expenses to support new store growth ~~$3.5~~and $3.6 million of ~~corporate related~~corporate-related expenses, ~~and~~ ~~$1.0 million~~ ~~of fees incurred for our secondary public offering,~~ partially offset by a decrease of ~~$3.7~~$2.0 million in stock-based compensation expense ~~primarily~~and $1.0 million of fees related to our secondary public offering that was incurred during the twenty-six weeks ended August 3, 2013. The decrease in stock-based compensation was driven by the decrease of expense related to the cancellation of certain stock options in exchange for the grant of restricted shares in March 2012.

The remaining expense and vesting related to the cancellation of certain stock options in exchange for the grant of restricted shares from March 2012 was recognized during the first quarter of fiscal 2014.

Interest Expense, Net

Interest expense, net decreased to ~~$0.9~~$0.1 million in the twenty-six weeks endedAugust ~~3, 2013~~2, 2014 from ~~$1.3~~$0.9 million of interest expense, net in the twenty-six weeks ended~~July 28, 2012~~, August 3, 2013, adecrease of ~~$0.4 million~~.$0.8 million. The decrease in interest expense resulted mainly from the decrease in the outstanding balance of our Term Loan Facility (see –“-“Liquidity and Capital ~~Resources~~Resources-~~-Term~~Term Loan Facility” ~~section~~ below). In February 2014, we repaid the remaining principal balance outstanding under the Term Loan Facility of

$19.5 million.

Loss on Debt Extinguishment

Loss on ~~Debt Extinguishment decreased to~~ ~~$0.3~~debt extinguishment was $0.2 million in during the twenty-six weeks endedAugust ~~3, 2013~~ ~~from~~ ~~$1.6 million~~ ~~in the~~ ~~twenty-six weeks endedJuly 28, 2012, a decrease of~~ ~~$1.3 million. The decrease in the loss on debt extinguishment~~2, 2014 and is due to the ~~$15.0~~$19.5 million repayment of the remaining principal balance outstanding on the $100.0 million Term Loan Facility ~~during the~~ in February 2014.~~twenty-six weeks endedAugust 3, 2013~~ ~~compared to the $65.3 million repayment that was made during the~~ ~~twenty-six weeks endedJuly 28, 2012~~.

Income Tax Expense

Income tax expense ~~for~~increased to $6.9 million in the twenty-six weeks ended August 2, 2014 from $3.6 million in the twenty-six weeks ended August 3, 2013, ~~was~~ ~~$3.6~~ an increase of $3.3 million, ~~compared to a~~ ~~$0.1 million~~ ~~income tax expense for the~~ ~~twenty-six weeks endedJuly 28, 2012~~, an~~increase~~ of ~~$3.5 million~~ or approximately 92.6%. ~~This~~ The increase in income tax expense was primarily the result of a ~~$9.0~~$9.1 millionincrease in pre-tax income. Our effective tax rate ~~was~~ ~~38.8%~~for the twenty-six weeks endedAugust ~~3, 2013~~2, 2014 was 37.6% compared to ~~44.4%~~ ~~for~~38.8% in the twenty-six weeks ended~~July 28, 2012~~. August 3, 2013. Our effective tax rate for the twenty-six weeks endedAugust ~~3, 2013~~2, 2014 was lower than the ~~comparable period~~twenty-six weeks ended August 3, 2013 as a result of changes in the mix of ~~projected~~ pretax income across state jurisdictions and ~~the Company's~~changes in our operating entities as a result of the ~~Restructuring. For the remainder of fiscal 2013, we believe our effective tax rate will be approximately~~ Restructuring (see -“Liquidity and Capital Resources-~~38.8%~~Overview” below).

Net Income

As a result of the foregoing, net income increased to ~~$5.6~~$11.4 million in the twenty-six weeks ended August 2, 2014 from $5.6 million in the twenty-six weeks ended August 3, 2013, ~~from net income~~ an increase of ~~$0.1~~approximately $5.8 million, ~~in the~~ ~~twenty-six weeks endedJuly 28, 2012~~, an~~increase~~ of ~~$5.5 million~~ or 102.2%.

2019

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash flows from operations, historical equity financings and borrowings under our Revolving Credit Facility (defined in ~~“-Line~~“-Line of ~~Credit”~~Credit”). Our primary cash needs are for capital expenditures and working capital. During fiscal 2012, we ~~also~~ entered into a Term Loan Facility (defined in “-Term Loan Facility”) ~~and used~~. We repaid the ~~proceeds to pay a dividend~~remaining principal balance outstanding under the Term Loan Facility in ~~May 2012.~~February 2014.

Capital expenditures typically vary depending on the timing of new store openings and infrastructure-related investments. We plan to make capital expenditures of approximately $2836 million in fiscal ~~2013,~~2014, which we expect to fund from cash generated from operations. We expect to devote approximately $1617 million of our capital expenditure budget in fiscal ~~2013~~2014 to construct and open ~~60 net~~ new stores, with the remainder projected to be spent on corporate infrastructure, store relocations and remodels, and ~~expansion projects, the~~our distribution centers ~~and corporate infrastructure.~~including the new distribution center in Oldmans Township, New Jersey.

Our primary working capital requirements are for the purchase of store inventory and payment of payroll, rent, other store operating costs and distribution costs. Our working capital requirements fluctuate during the year, rising in the third and fourth fiscal quarters as we take title to increasing quantities of inventory in anticipation of our peak, year-end holiday shopping season in the fourth fiscal quarter. Fluctuations in working capital are also driven by the timing of new store openings.

Historically, we have funded our capital expenditures and working capital requirements during the fiscal year with cash on hand, net cash provided by operating activities and borrowings under our Revolving Credit Facility. We did not have any direct borrowings under our Revolving Credit Facility during the twenty-six weeks endedAugust ~~3, 2013~~.2, 2014. When we have used our Revolving Credit Facility, the amount of indebtedness outstanding under it has tended to be the highest in the beginning of the fourth quarter of each fiscal year. ~~Over the past three fiscal years, to~~To the extent that we have drawn on the facility, we have paid down the borrowings before the end of the fiscal year with cash generated during our peak selling season in the fourth quarter.

On June 12, 2013,, we completed an internal business restructuring pursuant to which we formed Five Below Merchandising, Inc., a wholly-owned subsidiary (the “Subsidiary”), and transferred to the Subsidiary assets, operations and employees related to our merchandising operations (the “Restructuring”). Following the Restructuring, the Subsidiary purchases and sells to us certain goods for sale at our retail locations, and we provide to the Subsidiary back office support, office space and other services, in each case, pursuant to agreements between us and the Subsidiary. In connection with the Restructuring, on June 12, 2013,, we amended and restated the Loan and Security Agreement (defined in “-Line of Credit”) and certain other ancillary documents to our Revolving Credit Facility in order to, among other things, allow us to form and capitalize the Subsidiary and make the Subsidiary a party to the Loan and Security Agreement as a guarantor of our obligations thereunder. The Subsidiary also acceded to the credit agreement and certain ancillary documents to our Term Loan Facility as a guarantor of our obligations thereunder. ~~For accounting purposes, our~~

Our consolidated financial statements include the accounts of Five Below, Inc. and the Subsidiary. All intercompany transactions and accounts are eliminated in ~~consolidation.~~

~~The balance outstanding under~~ the ~~Term Loan Facility was~~ ~~$19.5 million~~ asconsolidation of ~~August 3, 2013. Pursuant to the terms of the Term Loan Facility, due to the repayment of~~ ~~$65.3 million~~ ~~of principal under the Term Loan Facility in July 2012, we are no longer required to make minimum quarterly payments.~~ In May 2013, we repaid $15.0 million of principal on the Term Loan Facility. This amount was classified as a current liability as of February 2, 2013. The remaining unpaid balance will be due upon maturity.

our financial statements.

Based on our growth plans, we believe that our cash position, net cash provided by operating activities and availability under our Revolving Credit Facility will be adequate to finance our planned capital expenditures, working capital requirements and debt service over the next 12 months and for the foreseeable future thereafter. If cash flows from operations and borrowings under our Revolving Credit Facility are not sufficient or available to meet our requirements, then we will be required to obtain additional equity or debt financing in the future. There can be no assurance that equity or debt financing will be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to our then-current shareholders.

Cash Flows

A summary of our cash flows from operating, investing and financing activities is presented in the following ~~table:~~

table (in millions):

Twenty-Six Weeks Ended
August 3, 2013 July 28, 2012
(in millions) ⁽¹⁾
Net cash used in operating activities $ (5.7 ) $ (20.6 )
Net cash used in investing activities (15.1 ) (11.6 )
Net cash (used in) provided by financing activities (14.2 ) 8.6
Net decrease during period in cash and cash equivalents $ (35.0 ) $ (23.6 )



	Twenty-Six Weeks Ended
	August 2, 2014			August 3, 2013
Net cash provided by (used in) operating activities	$	12.6		$	(5.7	)
Net cash used in investing activities	(19.7		)	(15.1		)
Net cash used in financing activities	(17.6		)	(14.2		)
Net decrease during period in cash and cash equivalents ⁽¹⁾	$	(24.7	)	$	(35.0	)

(1) Components may not add to total due to rounding.

Cash ~~Used in~~Provided by (Used in) Operating Activities

Net cash provided by operating activities for the twenty-six weeks ended August 2, 2014 was $12.6 million, an increase of $18.3 million compared to the cash used in operating activities ~~for the~~ during twenty-six weeks endedAugust 3, ~~2013~~ ~~was~~ ~~$5.7 million, a decrease of approximately~~ ~~$14.9 million~~ ~~compared to the~~ ~~twenty-six weeks endedJuly 28, 2012~~.2013. The ~~decrease in net cash used in operating activities~~increase was primarily ~~the result of~~due to an increase in operating cash flows from ~~the addition of new stores and existing~~ store performance ~~as well as a decrease~~offset by an increase in ~~bonus payments~~income taxes paid of ~~approximately~~ ~~$4.4 million~~ ~~primarily driven by a decrease in payments to certain executive officers.~~$3.0 million.

Cash Used in Investing Activities

Net cash used in investing activities for the twenty-six weeks endedAugust ~~3, 2013~~2, 2014 was ~~$15.1~~$19.7 million,, an increase of ~~$3.5~~$4.6 million compared to the twenty-six weeks ended~~July 28, 2012~~ August 3, 2013 related solely to capital expenditures. The increase in capital expenditures was primarily for ~~the build-out of our second distribution center,~~ our new store construction, corporate infrastructure and ~~corporate infrastructure.~~our distribution facilities.

Cash ~~(Used in) Provided by~~Used in Financing Activities

Net cash used in financing activities for the twenty-six weeks endedAugust ~~3, 2013~~2, 2014 was ~~$14.2~~$17.6 million,, an increase of ~~$22.7~~$3.4 million compared to ~~the~~ net cash ~~provided by~~used in financing activities ~~for~~of $14.2 million in the twenty-six weeks ended~~July 28, 2012~~. August 3, 2013. The increase in net cash used in financing activities was primarily the result of the ~~$15.0 million principal repayment on the Term Loan Facility (see below) during the~~ ~~twenty-six weeks endedAugust 3, 2013~~ compared to $100.0 million of proceeds from our Term Loan Facility and $74.3 million of net proceeds from our initial public offering, partially offset by $99.5 million of dividend payments, and a $65.3$19.5 million principal repayment on the Term Loan Facility during the twenty-six weeks ended~~July 28, 2012~~ August 2, 2014 compared to the $15.0 million principal repayment on the Term Loan Facility during the twenty-six weeks ended August 3, 2013. As of .August 2, 2014, there was no balance outstanding under the Term Loan Facility.

Term Loan Facility

On May 16, 2012, we entered into a $100.0 million Term Loan Facility with Goldman Sachs Bank USA as administrative agent for a syndicate of lenders (the “Term Loan Facility”). ~~We used the net proceeds from the Term Loan Facility and cash on hand to pay a dividend on our common and preferred stock, totaling~~ ~~$99.5 million~~.

~~The Term Loan Facility provided for a term loan of~~ ~~$100.0 million~~ and matures on the earlier of (i) May 16, 2015 and (ii) the date on which such facility is accelerated following the occurrence of an event of default. The Term Loan Facility provides for interest on borrowings, at our option, at an alternate base rate which is the greater of (i) the administrative agent’s prime rate in effect on such day and (ii) the federal funds effective rate in effect on such day plus ~~0.50%~~ ~~with a~~ ~~2.00%~~ ~~floor, plus a margin of~~ ~~3.25%, or a London Interbank Offer Rate (“LIBOR”) based rate with a~~ ~~1.00%~~ ~~floor plus a margin of~~ ~~4.25%. The credit agreement for the Term Loan Facility includes a maximum consolidated net leverage ratio financial covenant, the calculation of which allows us to net up to~~ ~~$10.0 million~~ ~~of our cash and cash equivalents against our indebtedness. Our leverage ratio must not exceed~~ ~~2.75x to~~ ~~2.50x for the testing periods in calendar year 2013,~~ ~~2.00x for the testing periods in calendar year 2014 and~~ ~~1.75x thereafter.~~

The credit agreement for the Term Loan Facility also includes customary negative and affirmative covenants including, among others, limitations on our ability to: (i) incur additional debt; (ii) create liens; (iii) make certain investments, loans and advances; (iv) sell assets; (v) pay dividends or make distributions or other restricted payments; (vi) engage in mergers or consolidations; or (vii) change our business.

~~July 24, 2012. In July 2012, we repaid~~ ~~$65.3 million~~ ~~of principal against the Term Loan Facility and~~ ~~$0.7 million~~ ~~of interest. In October 2012 and May 2013, we repaid~~ ~~$0.3 million~~ ~~and~~ ~~$15.0 million, respectively, of principal on the Term Loan Facility. As of~~ ~~August 3, 2013, the balance outstanding under the Term Loan Facility was~~ ~~$19.5 million~~ ~~bearing interest at a rate of~~ ~~5.25%. Pursuant to the terms of the Term Loan Facility, due to the repayment of~~ ~~$65.3 million~~ ~~of principal under the Term Loan Facility in July 2012, we are no longer required to make minimum quarterly payments. The remaining unpaid balance will be due upon maturity.~~

~~In connection with the Term Loan Facility, we incurred deferred financing costs of~~ ~~$2.7 million~~ ~~which are being amortized over the term of the Term Loan Facility. The amortization is included in interest expense, net, in the consolidated statements of operations. In connection with the~~ ~~$65.3 million~~ ~~principal repayment on the Term Loan Facility in July 2012 and the $15.0 million principal repayment on the Term Loan Facility in May 2013, approximately~~ ~~$1.6 million~~ ~~and~~ ~~$0.3 million, respectively, of the deferred financing costs were written off and included in loss on debt extinguishment in the consolidated statements of operations for the thirteen and~~ ~~twenty-six weeks endedJuly 28, 2012~~ ~~and~~ ~~August 3, 2013. The remaining deferred financing costs, net of amortization, are included in other assets on the balance sheet at~~ ~~August 3, 2013~~.

On June 12, 2013 in connection with the Restructuring, the Subsidiary acceded to the credit agreement and certain ancillary documents to the Company's Term Loan Facility as a guarantor of the Company's obligations thereunder.

~~All obligations~~ In February 2014, we repaid the remaining principal balance outstanding under the Term Loan Facility ~~are secured by substantially all~~ of ~~our assets and are guaranteed by~~

~~the Subsidiary. As of~~ $19.5 million.~~August 3, 2013, we were in compliance with the financial covenant and other covenants applicable to us under the Term Loan Facility.~~

Line of Credit

On August 18, 2006, we entered into a loan and security agreement (the “Loan and Security Agreement”) ~~with a bank~~ that included a revolving line of credit with advances tied to a borrowing base. The Loan and Security Agreement has been amended and/or restated several times, the latest on June 12, 2013 (as amended and restated, the “Revolving Credit Facility”), generally to extend the maturity date, increase maximum borrowings, adjust the applicable interest rates, permit the formation and capitalization of subsidiaries, make the Subsidiary a party to the agreement as a guarantor of our obligations and modify certain definitions.

The Revolving Credit Facility allows maximum borrowings of $20.0 million with advances tied to a borrowing base and expires on the earliest to occur of (i) May 16, 2017 ~~(ii) the date which is 45 days prior to the maturity date of the Term Loan Facility if the Term Loan Facility remains outstanding~~ or ~~(iii)~~(ii) upon the occurrence of an event of default. The Revolving Credit Facility may be increased to $30.0 million upon certain conditions. The Revolving Credit Facility includes a $5.0 million sub limit for the issuance of letters of credit. The borrowing base is 90% of eligible credit card receivables plus 90% of the net recovery percentage of eligible inventory less established reserves.

The Revolving Credit Facility provides for interest on borrowings, at our option, at (a) a prime rate plus a margin of (i) 0.75%if excess availability is greater than or equal to 75%, (ii) 1.0% if excess availability is less than 75%but greater than or equal to 33% or (iii) 1.25%if excess availability is less than 33% or (b) a LIBOR-based rate plus a margin of (i) 1.75% if excess availability is greater than or equal to 75%, (ii)2.00% if excess availability is less than 75% but greater than or equal to 33% or (iii) 2.25% if excess availability is less than 33%. The Revolving Credit Facility further provides for a letter of credit fee equal to the LIBOR-based rate plus (i) 1.75% if excess availability is greater than or equal to 75%, (ii) 2.00% if excess availability is less than 75% but greater than or equal to 33% or (iii) 2.25% if excess availability is less than 33%. The Revolving Credit Facility also contains an unused credit facility fee of 0.375% per annum and is subject to a servicing fee of ~~$12,000~~approximately $12.0 thousand per year.

The Revolving Credit Facility includes a covenant which requires us to maintain minimum excess collateral availability of no less than the greater of (i) 10%of the then effective maximum credit and (ii) ~~$3.0 million.~~

$3.0 million.

The Revolving Credit Facility also includes customary negative and affirmative covenants including, among others, limitations on our ability to (i) incur additional debt; (ii) create liens; (iii) make certain investments, loans and advances; (iv) sell assets; (v) pay dividends or make distributions or other restricted payments; (vi) engage in mergers or consolidations; or (vii) change our business.

2.0% upon an event of default. Amounts under the Revolving Credit Facility may become due upon certain events of default including, among others, failure to comply with the Revolving Credit ~~Facility~~Facility’s covenants, bankruptcy, default on certain other indebtedness or a change in control.

As of August ~~3, 2013, we~~2, 2014, the Company had no borrowings ~~outstanding~~under the Revolving Credit Facility and had approximately ~~$19.1~~$20.0 million ~~of the~~ ~~$20.0 million~~ available on the line of ~~credit under the Revolving Credit Facility as approximately~~ ~~$0.9 million~~ ~~was outstanding in letters of~~ credit.

All obligations under the Revolving Credit Facility are secured by substantially all of our assets and are guaranteed by the Subsidiary. As of August ~~3, 2013~~,2, 2014, we were in compliance with the covenants applicable to us under the Revolving Credit Facility.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results may vary from estimates in amounts that may be material to the financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. Our critical accounting policies and estimates are discussed in the Annual Report. We believe that there have been no significant changes to our critical accounting policies during the twenty-six weeks endedAugust ~~3, 2013~~.2, 2014.

Contractual Obligations

Except as set forth below, there have been no material changes to our contractual obligations as disclosed in the Annual Report, other than those which occur in the ordinary course of business.

From February 2, ~~2013~~2014 to August ~~3, 2013~~2, 2014, we have entered into 2339 new fully executed retail leases with an average term of 10 years and other lease modifications that have future minimum lease payments of approximately ~~$37.5 million~~. $64.9 million. We also signed a lease for a new distribution center in Oldmans Township, New Jersey that expires in 2025 with options to renew for three successive five-year periods with future minimum lease payments of approximately $44.6 million.

In addition, as of August ~~3, 2013, the~~2, 2014, there was no remaining balance outstanding under the Term Loan Facility ~~was~~ ~~$19.5 million. Pursuant to the terms of the Term Loan Facility,~~ due to the $19.5 million repayment of ~~$65.3 million~~ ~~of principal under the Term Loan Facility~~ in ~~July 2012, we are no longer required to make minimum quarterly payments. The remaining unpaid balance will be due upon maturity. The balance bears an interest rate of 5.25%.~~February 2014.

~~Off Balance~~Off-Balance Sheet Arrangements

~~As of and for~~For the ~~twenty-six weeks~~quarterly period ended August ~~3, 2013~~2, 2014, except for operating leases entered into in the normal course of business, we were not party to any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, expenses, results of operations, liquidity, capital expenditures or capital resources.

~~Item~~ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our principal market risk relates to interest rate sensitivity, which is the risk that future changes in interest rates will reduce our net income or net assets. We have a Revolving Credit Facility which includes a revolving line of credit with advances tied to a borrowing base, ~~and a Term Loan Facility, both of~~ which ~~bear~~bears interest at a variable rate. Because our Revolving Credit Facility ~~and Term Loan Facility bear~~bears interest at a variable rate, we will be exposed to market risks relating to changes in interest rates.

As of August ~~3, 2013~~2, 2014, we had no borrowings outstanding ~~and had approximately~~ ~~$19.1 million~~ ~~of the~~ ~~$20.0 million~~ ~~available on the line of credit~~ under the Revolving Credit ~~Facility as approximately~~ ~~$0.9 million~~ ~~was outstanding in letters of credit.~~Facility. The Revolving Credit Facility provides for interest on borrowings, at ~~our~~the Company's option, at (a) a prime rate plus a margin of (i) 0.75%if excess availability is greater than or equal to 75%, (ii) 1.0% if excess availability is less than 75%but greater than or equal to 33% or (iii) 1.25%if excess availability is less than 33% or (b) a LIBOR-based rate plus a margin of (i) 1.75% if excess availability is greater than or equal to 75%, (ii)2.00% if excess availability is less than 75% but greater than or equal to 33% or (iii) 2.25% if excess availability is less than 33%. The Revolving Credit Facility further provides for a letter of credit fee equal to the LIBOR-based rate plus (i) 1.75% if excess availability is greater than or equal to 75%, (ii) 2.00% if excess availability is less than 75% but greater than or equal to 33% or (iii) 2.25% if excess availability is less than 33%.

~~As of~~ ~~August 3, 2013, the principal amount of the Term Loan Facility was~~ ~~$19.5 million~~. The Term Loan Facility provides for interest on borrowings, at our option, at an alternate base rate which is the greater of (i) the administrative agent's prime rate in effect on such day and (ii) the federal funds effective rate in effect on such day plus 0.50% with a 2.00% floor plus a margin of 3.25% or a LIBOR-based rate with a 1.00% floor plus a margin of 4.25%. Based on a sensitivity analysis at ~~August 3, 2013, a 100 basis point increase in market interest rates would increase our annual interest expense on the Term Loan Facility by approximately $0.2 million.~~ We do not use derivative financial instruments for speculative or trading purposes, but this does not preclude our adoption of specific hedging strategies in the future.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial. We cannot assure you, however, that our results of operations and financial condition will not be materially impacted by inflation in the future.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q pursuant to Rule 13a-15(b) of the ~~Securities~~ Exchange ~~Act of 1934 (the “Exchange Act”).~~Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q are effective at a reasonable assurance level in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all errors and all fraud. While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control over Financial Reporting

There ~~was~~were no ~~change~~changes to our internal control over financial reporting during the thirteen weeks endedAugust ~~3, 2013~~2, 2014 that ~~has~~have materially affected, or that isare reasonably likely to materially affect, our internal control over financial reporting.

PART ~~II—~~II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

We are subject to various proceedings, lawsuits, disputes, and claims arising in the ordinary course of our business. Many of these actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against us from time to time include commercial, intellectual property, customer, and employment actions, including class action lawsuits. The plaintiffs in some actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in part by insurance. We cannot predict with assurance the outcome of actions brought against us. Accordingly, adverse developments, settlements, or resolutions may occur and negatively impact income in the quarter of such development, settlement or resolution. If a potential loss arising from these lawsuits, claims and pending actions is probable and reasonably estimable, we record the estimated liability based on circumstances and assumptions existing at the time. Although the outcome of these and other claims cannot be predicted with certainty, management does not believe that the ultimate resolution of these matters will have a material adverse effect on our financial condition or results of operations.

ITEM 1A.RISK FACTORS

Risk factors that affect our business and financial results are discussed in Part I, ~~“Item 1A. Risk~~Item 1A "Risk Factors,” in our Annual Report. ~~Except as set forth below, there~~There have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, ~~and below,~~ which could materially affect our business, financial condition or future results. The risks described in our Annual Report ~~and below~~ are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.

~~New regulations related to conflict minerals could adversely impact our business.~~

The Securities and Exchange Commission has promulgated final rules mandated by the Dodd-Frank Act regarding disclosure of the use of tin, tantalum, tungsten and gold, known as conflict minerals, included in components of products either manufactured by public companies or for which public companies have contracted to manufacture. These new rules require due diligence to determine whether such minerals originated from the Democratic Republic of Congo (the “DRC”) or an adjoining country and whether such minerals helped finance the armed conflict in the DRC. The first conflict minerals report required by the new rules is due by May 31, 2014 and annually thereafter. While we do not manufacture products, we may be deemed to contract to manufacture products. There will be costs associated with complying with these disclosure requirements, including costs to determine the origin of conflict minerals used in any products we are deemed to contract to manufacture. In addition, the implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. Also, we may face reputational challenges if the due diligence procedures we implement do not enable us to verify the origins for all conflict minerals or to determine that such minerals are DRC conflict-free.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~The table below sets forth information regarding repurchases of our common stock during the second fiscal quarter of~~

~~2013. The shares represent shares of our common stock that we have elected to repurchase due to a termination of employment prior to vesting. We do not consider this a share buyback program.~~

Period
(a)
Total
Number of
Shares (or
Units)
Purchased

(b)
Average
Price
Paid per
Share
(or Unit)

(c)
Total
Number of
Shares (or
Units)
Purchased
as Part of
Publicly
Announced
Plans or
Programs

(d)
Maximum
Number (or
Approximate
Dollar Value)
of Shares
(or Units)
that May Yet
Be
Purchased
Under the
Plans or
Programs

May 5, 2013 through June 1, 2013 259
$ 11.45
—
$ —
June 2, 2013 through July 6, 2013 — —
—
—
July 7, 2013 through August 3, 2013 — —
—
—
Total 259
$ 11.45
—
$ —

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

~~None.~~

Not applicable.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

None.

2824

ITEM 6.EXHIBITS

(a)Exhibits



No.		Description

10.1		Employment Letter and Non-Disclosure Agreement, each dated June 8, 2014, by and between Joel D. Anderson and Five Below, Inc. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on June 12, 2014).

10.2		Employment Letter and Non-Disclosure Agreement, each dated May 21, 2014, by and between Eric M. Specter and Five Below, Inc. (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Commission on June 12, 2014).

10.3		Form of Non-Qualified Stock Option Agreement ~~(Employees)~~ for Executives (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Commission on June 30, 2014).

10.4		Form of Non-Qualified Stock Option Agreement ~~(Executives)~~for Employees (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Commission on June 30, 2014).

10.5		Form of Award Agreement for Restricted Stock Units (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the Commission on June 30, 2014).

31.1		Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101†		The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended August ~~3, 2013,~~2, 2014, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Unaudited Consolidated Balance Sheets as of August 2, 2014, February 1, 2014 and August 3, ~~2013, February 2, 2013 and July 28, 2012;~~2013; (ii) the Unaudited Consolidated Statements of Operations for the Thirteen Weeks Ended and Twenty-Six Weeks Ended August 2, 2014 and August 3, ~~2013 and July 28, 2012;~~2013; (iii) the Unaudited Consolidated Statement of Shareholders’ Equity for the and Twenty-Six Weeks Ended August ~~3, 2013;~~2, 2014; (iv) the Unaudited Consolidated Statements of Cash Flows for the and Twenty-Six Weeks Ended August 2, 2014 and August 3, 2013 ~~and July 28, 2012~~ and (v) the Notes to Unaudited Consolidated Financial Statements, tagged in detail.



*	~~Incorporated by reference.~~
†	Pursuant to applicable securities laws and regulations, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections.

2925

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		FIVE BELOW, INC.

Date: September ~~10, 2013~~11, 2014		/s/ Thomas G. Vellios
		Thomas G. Vellios
		~~President and~~ Chief Executive Officer (duly authorized officer and Principal Executive Officer)

Date: September ~~10, 2013~~11, 2014		/s/ Kenneth R. Bull
		Kenneth R. Bull
		Chief Financial Officer ~~(Principal~~ (Principal Financial Officer and Principal Accounting Officer)

3026

EXHIBIT INDEX



No.		Description

~~10.3~~		~~Form of Non-Qualified Stock Option Agreement (Employees)~~

~~10.4~~		~~Form of Non-Qualified Stock Option Agreement (Executives)~~

31.1		Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101†		The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended August ~~3, 2013,~~2, 2014, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Unaudited Consolidated Balance Sheets as of August 2, 2014, February 1, 2014 and August 3, ~~2013, February 2, 2013 and July 28, 2012;~~2013; (ii) the Unaudited Consolidated Statements of Operations for the Thirteen Weeks Ended and Twenty-Six Weeks Ended August 2, 2014 and August 3, ~~2013 and July 28, 2012;~~2013; (iii) the Unaudited Consolidated Statement of Shareholders’ Equity for the and Twenty-Six Weeks Ended August ~~3, 2013;~~2, 2014; (iv) the Unaudited Consolidated Statements of Cash Flows for the and Twenty-Six Weeks Ended August 2, 2014 and August 3, 2013 ~~and July 28, 2012~~ and (v) the Notes to Unaudited Consolidated Financial Statements, tagged in detail.



†	Pursuant to applicable securities laws and regulations, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections.

3127



	Retail stores		Corporate office and distribution centers		Total
Fiscal year:
Remaining 2013	$	21,366	$	1,762	$	23,128
2014	44,476		4,413		48,889
2015	44,014		4,678		48,692
2016	43,033		3,097		46,130
2017	42,609		2,610		45,219
Thereafter	165,118		13,031		178,149
	$	360,616	$	29,591	$	390,207



	Number of shares		Deposit liability
Unvested, February 2, 2013	31,542		$	308
Vested	(17,019	)	(120		)
Repurchases upon employee termination	(259	)	(3		)
Unvested, August 3, 2013	14,264		$	185



Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
May 5, 2013 through June 1, 2013	259	$	11.45	—	$	—
June 2, 2013 through July 6, 2013	—	—		—	—
July 7, 2013 through August 3, 2013	—	—		—	—
Total	259	$	11.45	—	$	—

Large accelerated filer

Accelerated filer

Non-accelerated filer

x¨ ~~(Do~~(Do not check if a smaller reporting company)

Smaller reporting company